If you're buying life insurance, why not try to save a little money along the way? Check out these money-saving tips for buying life insurance.
It's your first time buying life insurance and you've done your homework — researching the different types of life insurance policies and shopping around to compare prices from different companies. (Your parents should be proud.)
But don't sign on the dotted line just yet.
With a little help, you might be able to save money on the coverage you need to help financially protect your loved ones.
Here are some money-saving tips for buying life insurance.
Compare Apples to Apples
You wouldn't stay in a hotel or eat at a restaurant without comparison-shopping. The same should be true for buying life insurance. However, just as it wouldn't be fair to compare the cost of an all-inclusive resort to a hotel that only provides a room, it's important to always compare apples to apples when looking at life insurance policies from different companies.
For starters, make sure that both are classified as the same type of life insurance policy, such as permanent life insurance or term life insurance. A term life insurance policy from one company will likely be less expensive than a whole life policy from another — and the features of the policy will be completely different. So, if you're getting quotes from different companies, always compare like policies.
Choose a Reputable Life Insurance Company
When you buy a life insurance policy, you do so with the expectation that the company will still be there when it's time for your loved ones to cash it in. Choosing a reputable company now can save your family time, money and hassle later.
How can you find a life insurance company worthy of your trust?
Take into account their rating from third-party agencies, such as A.M. Best. That can help give you an indication of the company's financial strength (or lack thereof).
You might also consider the life insurance company's longevity. How long has the company been in business? If it's been around for decades, it's a sign of durability. That means the company is more likely to still be around when you and your loved ones need it most.
Look for Ways to Save Money on Life Insurance
You know that life insurance is important — as it can help your loved ones stay afloat financially, should you pass away.
So, if you know you need to buy it anyway, why not try to save a little money along the way?
Fortunately, there are a number of money-saving tips for buying life insurance.
Here are some of them:
1. Ask About Life Insurance Price Breaks
To save money on certain types of life insurance policies, such as term life insurance, ask about more coverage, not less. Some companies offer life insurance price breaks, also called "milestone discounts," for higher coverage amounts.
For example, you might get a break for getting $250,000 in coverage instead of $200,000. So even if you figure out that you only need a certain amount of coverage to protect your loved ones, it may be worth asking how much a higher level of coverage would cost.
You could end up saving money on life insurance, while getting your loved ones greater protection.
2. Choose a Life Insurance Policy That Requires a Medical Exam
To get approved for certain types of life insurance, such as term or permanent life insurance, you often have to first take a life insurance medical exam. The results from that exam, along with your answers to a health questionnaire, help the life insurance company assess your level of risk for passing away prematurely.
However, there are also certain policies that allow you to forgo the life insurance medical exam and questionnaire completely. There are a number of reasons why one might want to skip a medical exam, such as health issues.
But, if you're generally in good health, buying a life insurance policy that requires a medical exam will typically be less expensive than buying one that doesn't.
3. Customize Your Term Length
Term life insurance policies last for a specific duration of time, typically between 10 to 30 years.
However, some life insurance providers allow you to choose the amount of time that best serves your needs, in one-year increments.
For example, you might be 17 years away from paying off your mortgage. You can get a 17-year term life policy to match that mortgage commitment.
The longer your term duration, the more you'll likely be paying for it. By customizing your term length, you'll only pay for coverage during the years you need it most.
4. Get Extra Life Insurance Coverage Through a "Life Insurance Rider"
A life insurance rider is an addition or an amendment to a life insurance policy. Often times, it's a great way to get extra life insurance coverage for minimal additional cost.
There are number of different types of riders, such as accidental death benefits, child riders, terminal illness riders, or waiver of premium riders.
For example, you may be able to get accidental death benefits, which would pay out money in addition to the benefit amount of your life insurance policy. It's also advantageous because accidental death coverage is typically offered as a separate policy. By adding it as a rider to your life insurance policy, you'd only have to manage one policy instead of two.
5. Ask About Life Insurance Renewal Guarantees
With a life insurance renewal guarantee, you're guaranteed the chance to renew your term life insurance policy — without retaking the medical exam.
It's true that your life insurance premium will be based on your current age — not the age you were for your initial term, but you won't have to start the shopping process all over again.
This is particularly valuable if your health has declined. Trying to buy term life insurance from scratch with poor health could mean paying a higher premium — or not qualifying for coverage at all.
6. Compare Your Life Insurance Payment Options
Some insurers allow you to pay monthly, quarterly, semi-annually or annually. Paying annually can often save you money. Also, there are often fees for monthly billing (these are called "fractional premiums"). It might pinch to make an annual payment, but it's worth asking about in order to save money in the long run.
7. Buy Life Insurance While You're Young
Term life insurance is generally less expensive when you are younger and in relatively good health. That's not generally the time in life when most of us think about buying term life insurance, but actually, it's the best time to save money.
Waiting until later in life when you're older or might be dealing with medical issues can drive up your premiums — or it could even prevent you from qualifying for term life insurance at any price.
8. Buy Life Insurance that Aligns with Your Lifestyle
Are you a skydiver? Underwater welder? Pilot? If you have a high-risk hobby or occupation, be sure to shop different companies when buying life insurance. Each life insurance provider rates risks differently, so you might be able to find one that charges less for high-risk activities. Quality term life insurance may offer a good price for your lifestyle.
9. Look for Life Insurance with Living Benefits
Some companies may offer term life insurance policies with "living benefits." All term life policies offer your loved ones some degree of financial protection, should you pass away. But term life policies with living benefits may be able to provide you or your family with financial help during your lifetime — when you need it most. Living benefits are typically available to those who have a chronic, critical or terminal illness.
It can help to offset the cost of medical bills or other expenses, allowing you and your loved one to focus on what matters most — enjoying every moment together.
Source: AIG Direct
If you’ve received a diagnosis of terminal illness, and need funds from a life insurance policy before you die, several options are available to help address those sad circumstances. None, alas, is a perfect choice for all who have only a short time to live.
The insurance transaction that’s often pitched to the terminally ill is what’s known as viatical settlement, which involves the sale of your policy outright before you die. But many policies also offer other alternatives to those who are cash-strapped and aren’t expected to live very long.
Here’s more on settlements and the other ways to tap your insurance if your time is short, along with advice on choosing the option that works best for you.
What is a viatical settlement?
This is a type of life settlement, the term used to describe the sale to a third party of a whole, universal or convertible term life insurance policy. The sales process for a viatical settlement is structured the same way as a life settlement — the policyholder gets a lump sum in exchange for the buyer taking over premium payments and collecting the death benefit.
Unlike life settlement, though, the viatical option is available only to people who are terminally ill, or have serious, chronic and debilitating conditions, generally coupled with a life expectancy of two years or less.
Viatical settlements came into being nearly four decades ago, in the early years of the AIDS epidemic. In that period, getting HIV represented a death sentence, and many of its victims had been actuarially projected to live much longer.
The settlements offered a way for early AIDS patients to use their policies to offset end-of-life medical costs and living expenses. As medical advancements made it possible for people to live much longer after contracting HIV, viaticals remained as an option for anyone who is terminally ill and holds an eligible insurance policy.
The advantages of viatical vs. life settlements
For all their similarities, life settlements and viatical settlements differ in two key respects that can make the latter the more lucrative option.
To begin, a viatical settlement can yield a higher price. Since the buyer theoretically will be paying premiums for no more than two years before they collect the death benefit, they’ll likely make a better offer than if the policyholder were expected to live longer. (However, as with a life settlement, you can expect a viatical settlement on permanent life insurance, such as a whole life or universal life policy, to yield an offer that’s higher than the policy’s cash value but below the value of the death benefit.)
In addition, the proceeds from a viatical settlement can receive more favorable tax treatment. While proceeds from a life settlement are taxed as income, those from a viatical settlement may not be. If the money is used to pay for qualifying healthcare expenses, for example, you might be eligible for favorable tax treatment, according to I.R.S. regulations.
Pros and cons of a viatical settlement
Getting money upfront for life insurance is a welcome option for a policyholder who’s in need of expensive care at the end of their life, to cite just one financial challenge. But as with life settlements, those considering a viatical settlement for themselves or a loved one should carefully consider the ramifications of selling a life insurance policy to a third party.
Selling a permanent life insurance policy means that its death benefit will no longer be available for that person’s heirs. It also means the loss of a key financial safeguard. If the policyholder has outstanding debts, creditors or collection agencies could lay claim to the money they’re owed out of the sale proceeds. By contrast, a death benefit paid out to your heirs after you die is protected from such a claim.
In addition, the usual cautions about not rushing into a deal apply, particularly if the offer to buy the policy comes unsolicited or is accompanied by a high-pressure sales pitch. The AARP warns seniors and their families that unscrupulous operators might exploit the distress or panic that a terminal illness can trigger.
Alternatives to settlement
Fortunately, a settlement is by no means the only financial option if you have a dire health prognosis and need cash. The unfortunate few who are battling severe medical issues have a couple of other options.
A death benefit loan
If you have permanent life insurance, it’s possible you’ll be able to borrow against the cash value that’s built up in the policy. Such loans have potential disadvantages, but they do give you access to cash without having to sell the policy. And while the loan would be deducted from the death benefit upon your death, and is subject to interest, it would allow you to leave the remainder of the policy’s proceeds to your heirs, free from possible seizure by your creditors.
Accelerated death benefits
Some permanent life insurance policies allow policyholders experiencing a terminal or catastrophic illness, or in need of long-term care, to access some of the policy’s death benefit while they are still alive.
The sum that can be tapped is typically limited to 80% of a policy’s face value, according to the AARP. Also, receiving accelerated death benefits lowers the benefit payout the policy beneficiary will receive after the policyholder’s death. The policyholder also remains responsible for making premium payments on their policy.
To qualify, one usually has to have a life expectancy of 6 months or less, or maybe 12 months, at most. In some cases, that may be an option worth considering.
Deciding how to tap your life insurance
The emotion that can follow a terminal diagnosis, on top of pressing financial needs, hardly creates ideal conditions for a careful financial decision on what to do with a life insurance policy. Nonetheless, you should proceed with due diligence as you wrestle with whether to sell a policy or access some of its money before you die.
The decision process should begin with seeking guidance from your financial advisor or attorney, as the non-profit Women’s Institute for a Secure Retirement (WISER) points out. If seeking a settlement is a strong possibility, shop around among several companies and/or brokers to find the best offer, and check with your state insurance department to verify that the company or broker you are considering is licensed. Finally, remembering that you don’t have to accept an offer [on your policy] and you can change your mind after one is made.
As for taxes, even if the funds from a viatical settlement are to be used for long-term care, it is important to discuss the tax implications with a qualified tax professional to determine whether the funds you receive will be subject to federal income tax.
Finally, keep in mind that the alternatives to a settlement that provide cash before you die are not all-or-nothing propositions.
Source: MSN Money
The pandemic has fundamentally changed the way Americans shop for essentials. Clothing, groceries and even prescription drugs are increasingly purchased online.
What they’re shopping for has changed as well. Applications for life insurance policies jumped 4% in 2020 — marking the highest year-over-year annual growth rate since 2001.
But while you can shop for almost anything else from the comfort of your couch — even other other forms of insurance, like auto, through comparison-shopping sites — until now, the process of buying life insurance has been much more complicated, including going to an in-person doctor’s appointment for a medical exam.
Some consumers have been left wondering whether finding an affordable life insurance policy means having to ignore public safety guidelines.
But the pandemic has caused a proliferation of the availability of no-exam life insurance, which you can get without leaving your home — meaning you don’t have to choose between protecting your family’s future and your own health.
How has the pandemic changed life insurance?
No-exam life insurance has been around for a long time. Until recently, it was the only option for high-risk individuals living with medical conditions or working dangerous jobs that make it hard to lock in life insurance.
But when the pandemic hit, having to travel to do a medical exam became more than an annoyance — it suddenly wasn’t safe.
In response, more than a third of life insurers have now expanded their offerings of accelerated underwriting during the pandemic.
With no-exam life insurance, you can skip the medical exam with its blood draws, urine tests and uncomfortable questions. You’ll simply fill out an application, and within minutes you’ll see the option you qualify for — and be able to immediately secure the coverage your family needs.
How does the process usually work?
Medical exams have long been an important part of the underwriting process for life insurance.
Each insurer has its own underwriting process, but generally after you submit an application, you’ll have to do a phone interview with an underwriter, take a medical exam and then allow the insurer to check whether you’ve applied for other life insurance policies and look into your prescription drug and driving history over the last few years. From there, an adviser will go through all the information to come up with a life expectancy and based on that, give you a quote.
This whole process can take up to two months.
How are some insurers adapting?
While insurers are aware consumers want the process to be easier, they also can’t just assign rates without some underwriting.
They first need to make sure they’re not overpromising because underdelivering in this situation would mean being unable to pay out claims as they come in — which could be disastrous.
And in some states, they also need to be able to legally justify their reasoning for coming up with rates in case an applicant ever contests their offers.
So getting rid of underwriting isn’t realistic. But over the last few years, some insurers have been using data and analytics to speed up and streamline the process.
At this point, there’s more than enough data out there on most categories of life insurance applicants to accurately calculate a fair premium without having to subject the person to a medical exam.
Some brokers can now even show you a quote within minutes of submitting your application.
What this means for you
Some online insurance companies can now take the information you provide through your application and run it through an algorithm that assesses your risk.
If you qualify, you’ll get coverage right away, without ever having to talk to anyone on the phone or taking a medical exam.
At a time when it feels like so many choices have been limited for us, you won’t have to choose between security and safety.
If you’ve been holding off on buying life insurance because you can’t safely leave your home or you think it’s going to cost an arm and a leg to opt out of a medical exam, you now have options.
Source: MSN Money
If you’re going through a divorce, life insurance may be low on your list of priorities, but any policies you purchased during your marriage could be considered marital property and may be subject to distribution. That said, the reason to sort out your life insurance with your former spouse is less to protect your financial interests than those of your children — if you have any.
Divorce proceedings typically differ from state to state. Still, insurance will likely come up during a divorce settlement negotiation, especially if there are children involved and the primary parent earns significantly more than the non-primary parent. Almost anything can be negotiable in a divorce case, and life insurance may be no different.
Here’s a quick guide to what to expect if you’re divorcing and one or both of the partners has insurance.
Term life insurance simplifies the split
Whether or not you’ll have the option of splitting your life insurance with your ex will mainly depend on the type of policy you have: term or permanent.
As the name implies, term life insurance covers a temporary financial need with a death benefit that expires between 10 to 30 years. If you, the insured, died within that timespan, your beneficiaries would receive a payout for the face value of the policy.
Commonly, policyholders tend to choose a term that expires right around the time their significant expenses are over — after the kids have moved out or their mortgage is paid off. As for the death benefit, the golden rule of thumb is to purchase 10 to 15 times your annual income, although that will depend on your financial needs.
Since term life insurance is a simple product that holds no cash value while you’re alive, this type of policy would not be treated as a marital asset during divorce proceedings. If you bought a term life policy while you were with your ex, the policy would likely be considered separate property because the financial asset in the term policy is the death benefit.
Whole life insurance can complicate matters
Conversely, permanent policies such as whole, indexed, variable, and universal life insurance do not expire as long as the policyholder pays the premiums. And these policies have an investment component known as “cash value” that could be considered a marital asset and may need to be split.
Since the life insurance policy itself cannot be split in two, both parties can negotiate the value of that cash component in exchange for another asset. This means that if you wanted to split your shared permanent policy, you’d have to cash it out and divide the proceeds or use the cash payout to cover legal fees or joint debts. And this is typically the most viable course of action for many, as permanent policies are expensive to maintain.
Naturally, many divorcées have a change in their monthly cash flow after splitting. Taking the expensive monthly premium of a whole life policy out of the picture can help alleviate costs.
Life insurance for the sake of the kids
If there are children involved, you may still have a financial obligation to your ex after the divorce settlement — or they to you. In these instances, there may be the need to maintain an existing life insurance policy or take out a new one, in the ex-spouse’s name, to protect alimony payments, child support, and pension or retirement funds.
A new policy may be needed if your spouse is in danger of not being able to cover their obligations to the kids were he or she to die. Ideally, the spouse themselves recognizes this vulnerability and is willing and able to take out (and pay for) the policy, or at least agrees to do so as part of a divorce settlement.
If that isn’t the case, though, you may want to consider taking out a policy on your ex, to benefit you and your kids. Even if you plan to pay the premiums, however, you will need your ex’s co-operation to buy the policy. Its approval will require their agreement to share personal medical information and perhaps to undergo a medical exam.
The process is potentially simpler with an existing policy, especially if you’re prepared to pay the premiums. Keeping a policy on your ex-spouse especially makes sense if they have developed potentially life-threatening medical issues since the policy was taken out.
It may also be wise if he or she is in a risky line of work, such as firefighting, policing, or construction. In that case, you could keep a term life policy on them as a precautionary measure. “If your ex runs into burning buildings or operates dangerous equipment for a living.
Expect life insurance to be part of divorce negotiations
The decision on whether or not to keep a life insurance policy on an ex will be part of the settlement agreement negotiation. If the ex that is paying for the policy is comfortable with maintaining it, the policy can remain. If the ex has no interest in providing coverage, it will be impossible to keep the policy, as it has to be a mutual agreement.
Once you get a divorce, you should aim to gain ownership of any policies your former spouse took out on your life because only they can modify the beneficiary designation on the policies. Even if you’re the policyholder, the judge could allow your former spouse to remain as a beneficiary if you owe them child support or alimony.
While you can name your children as beneficiaries, it can be complicated if they are minors. Therefore, you could establish a trust with a managing trustee that can help legally divide your death benefit between your children. This can be a good option when you don’t want or can’t trust your ex-spouse with the responsibility.
Choosing between term life and another policy type
Legal wrangling aside, if you and your ex need to purchase a new policy after your divorce, you’ll need to determine if term or permanent life insurance is the best choice. Term life will cover you for a predetermined period and is a popular option for most people looking for standard coverage, but higher net-worth individuals or people with special needs children could benefit from a permanent policy.
Finally, one of the most important things you can do to stabilize your financial future when getting divorced is to plan for the long term. After divorce, before you make any big moves, meet with a financial planner to understand the role life insurance plays in your larger financial picture. This should be a central part of your financial plan, especially if you have kids.
Source: MSN Money