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How to shop for life insurance
Thinking about buying life insurance but not sure where to start? SuperMoney's free life insurance reviews and comparison tools will help you find the right option for you.
How do you compare life insurance policies?
The many coverage levels, terms, and types of life insurance make comparing different policies difficult. It's important to make sure you're comparing apples to apples when shopping for a policy. Here are some guidelines to help you do that.
Keep a record of the following details for every quote you get.
- Name of the insurer and source of the quote: You will want to keep track of where you got the best life insurance quote.
- The underwriting class used in the quote: Your underwriting class is a way to measure your health. The healthier you are, the better your class. The better your class, the lower your policy premiums. If you don't use the same underwriting class when comparing policies, your quotes will vary and won't match the final offer from the insurance company.
- Insurance type: The cost of life insurance policies varies dramatically from one type to another. You'll find more details on insurance types below.
- Coverage amount: Make sure the coverage amounts are the same for the policies you are comparing.
- Insurance term: The term length of a policy will affect the final quote, so you need to be consistent.
- Monthly premium: This is the monthly cost of the insurance. Some insurance companies provide a discount if you pay it as an annual lump sum. If that is an option for you, consider this when comparing prices.
- Financial rating: Financial strength ratings estimate the risk of an insurer not being able to meet its financial obligations, such as paying claims. Although the details vary slightly depending on the agency, ratings are typically based on factors such as a company's assets and revenue from premiums compared to how much it pays out in claims.
This data is a great start when shopping for the best life insurance policy. But there are many other factors to consider. The questions below will help you when comparing the features and rates of life insurance companies.
What life insurance types are there?
There are three primary types of life insurance: term, whole, and universal. Which type is best? Well, that depends on your circumstances. Let's dig deeper into what differentiates the types of life insurance.
What is term life insurance?
Term life insurance is the easiest type to understand. You just have to choose a coverage amount and the length of the term — usually 5 to 30 years. If you die before the term of the insurance expires, your loved ones will receive a payout. If you die after the coverage expires, the insurance company doesn't pay a dime.
Term insurance is also the cheapest because it doesn't come with all the bells and whistles of other insurance types. The downside is that if your coverage expires and you still need life insurance, the premiums will be much higher later in life. That said, life insurance is not supposed to last forever. It's main purpose is to replace your income when you have loved ones that depend on you.
What is whole life insurance?
Whole life insurance is for life. In other words, if you take out a whole life insurance, you can keep it until you die. It is also a type of cash-value life insurance. This means that a portion of your monthly premiums will go to a savings account that is separate from the life insurance part of your policy. It's a kind of investment fund. The death benefit side of the policy is fixed and guaranteed, but the longer you pay into the policy, the more cash value you will build up.
What is universal life insurance?
As with whole life insurance, universal life insurance doesn't have an expiration date and includes a cash-value account. The difference is that it offers policyholders more flexibility. You can reduce or increase your death benefit. There is also more flexibility when it comes to choosing your premium amount and when you pay it.
You can also withdraw money from your cash-value account or use it to cover your insurance premiums. Some even use their cash-value account as collateral to apply for a loan. Of course, all that flexibility comes at a price.
What is variable universal life insurance?
Variable universal life insurance is different from basic universal life insurance in one key way. Instead of keeping your money in a cash account that earns a fixed amount of interest, you invest that money in things like mutual funds. This offers more potential for higher returns and also gives you more control. However, it also presents more risk.
What kind of life insurance should you get?
It all depends on your personal financial circumstances and goals. That said, people who are responsible about saving and investing often find it more cost-effective to buy term insurance and invest on their own.
Permanent life insurance policies, such as whole life insurance and universal life insurance, are several times more expensive for the same level of coverage.
Although it is true that permanent life insurance includes a cash-value portion and doesn't expire, you have to pay a high price for these features. Typically, you get better returns and pay lower fees if you use dedicated investment tools instead of life insurance.
Whole life insurance products, however, can be useful. If you're a high-income individual and you've already maxed out your other tax-deferred accounts, whole life insurance can be a useful part of managing your estate. And if you have a special-needs dependent who will need care after you are gone, whole life is a good option.
What factors influence the cost of life insurance?
Your "risk factor" has the greatest influence on the cost of your life insurance premiums. Your date of birth, gender, health history, family history, hobbies, and occupation all affect your lifespan and, as a result, the cost of your life insurance.
For example, people younger than 46, women, and nonsmokers enjoy lower life insurance premiums than older people, men, and smokers. By contrast, severely overweight individuals, smokers, and people in poor health may find it difficult to find life insurance policies with affordable premiums.
Regardless of your risk factors, you might find savings by bundling your life insurance policy with your home insurance or other policies. Other features to consider include retirement benefits and estate planning.
What are the eligibility requirements?
Whether or not you're eligible for a life insurance policy depends on your policy of choice. Most applicants can get approved for term life insurance, but getting offered an attractive universal or whole life insurance policy can be more challenging. And if you are elderly or in poor health, your chances of being offered an affordable policy are much lower.
What is my underwriting class?
Underwriting classes classify your level of health. This will affect the price of your premiums and how much coverage you can get. Underwriting classes can vary by insurer but most use these four classes: Preferred Plus, Preferred, Standard Plus, and Standard.
How long should your term life insurance last?
Are you only looking to hold a life insurance policy until your children are grown up and independent? If so, a term policy might be the more affordable option. On the other hand, if your spouse is unemployed and will need your support after your eventual death, a universal or whole life insurance plan may be a better fit. Consider your needs and seek out a policy with good life insurance reviews.
How much life insurance should you buy?
Life insurance is designed to provide emergency protection for your family. The coverage you need will depend on you lifestyle, priorities, and how much you can afford to pay in premiums.
First, start by making sure your coverage is sufficient to pay off your mortgage, student loans, car loans, credit card debt, and any other debts you may have. As you know from above, your survivors may not be obligated to pay off some of these debts. Still, ensuring your policy is large enough to cover all of them is the safest way to go. Why? Exempt debts are a matter of law, and laws are always complex. Isn't it better to give those you leave behind more than they need rather than less? If saving money on premiums is essential, consult a qualified professional, such as an attorney, when determining how much you need to leave to cover debts.
Second, think about the financial cost the loss of your income will have on your family. Will your family be able to pay for college costs? Does your spouse have enough retirement savings? Will your spouse and family be able to find alternative sources of income? How much money will those you leave behind need to cover your funeral and other such expenses?
How much coverage can you afford?
Typically, life insurance premiums are paid monthly. Sometimes, though, you can get discounts for paying in larger lump sums at the start of each year. So, when you shop for a policy, ask yourself how much you can afford to lose from your disposable income each month. For a healthy young adult, life insurance premiums for a short-term policy might cost as little as $20–$30. But the same policy for an older adult might cost twice that. And if you want whole life insurance, it could cost you 10 times more.
What fees do they charge?
In addition to your premium, life insurance policies charge a number of fees. These include sales charges, administration fees, mortality and expense risk charges, surrender charges (if you prematurely terminate your policy), and more. Before you commit to a life insurance policy, find out which fees they charge and take these into account when comparing similar policies.
What are its financial ratings?
Life insurance policies give you the peace of mind of providing your loved ones with a financial safety net. That peace of mind vanishes if you are not confident of an insurer's ability to pay a claim.
Financial strength ratings evaluate the likelihood that an insurance company will be able to meet its financial obligations, such as paying claims.
If you narrow your choices down to two insurance companies, one rated A++ and the other A+, either is likely to have your back when you need it. But you should probably avoid insurance companies with low financial strength ratings.
Do they have good customer service?
Many life insurance companies provide policyholders with online support, enabling payments and claim submission 24/7. Some companies also have dedicated mobile apps, while others feature mobile-friendly websites. You should also be able to obtain support by email and telephone. Claim forms should be available for download from the website. Agents who are local should be available for appointments, especially if you've purchased whole life insurance as part of an investment or retirement strategy.
What do life insurance reviews say about them?
A great way to learn what to expect is to read real, unbiased reviews from past customers. If multiple people cite the same issue with an insurance company, you can expect to run into that issue yourself. SuperMoney allows you to check thousands of consumer reviews for free.
Why is life insurance important?
Do you have children or plan to have them? Do you have a spouse who's unable to work or unable to work full time? Do you have elderly parents or grandparents who depend on you? (The probability that elderly dependents will outlive you seems small. But is it zero?) If you have anyone who would suffer financial hardship were you to die unexpectedly, life insurance merits consideration. It helps protect your loved ones financially if you die. It can:
Provide income replacement
If your salary contributes to your family's well-being, losing it unexpectedly could be the difference between your family getting by and struggling to put food on the table. Whether you leave behind a spouse or other dependents, losing your income could have tragic consequences for them.
Consider this. Is the amount you earn each month more or less than what your family saves? If you earn less than you family saves, your earnings are just extra money to save. Its loss will be manageable. But if you earn more than your family can afford to set aside unspent each month, loss of your income will put your family in the red.
Pay off debt you leave behind
In the words of the Consumer Financial Protection Bureau (CFPB), "As a general rule, no one else is obligated to pay the debt of a person who has died." So this benefit of life insurance may not seem very important.
Like most general rules, though, this one has exceptions. If you die with outstanding debt that matches one of the exceptions, the burden of that debt will be placed on survivors' shoulders. With a life insurance plan, those you leave behind receive a monetary amount that can be used to cover the costs of your unresolved debt.
So, what are the exceptions that would make your debt an argument for life insurance? The CFPB lists the following:
- Debt with a co-signer. If you die with the debt outstanding, paying it off becomes your co-signer's responsibility.
- If your credit card debt was on a card with a joint account holder, the surviving account holder remains responsible for it. Joint account credit cards are very common among spouses.
- If your debt is one that the laws in your state require be paid by your surviving spouse, your spouse will remain burdened by that debt after you die.
- If your debt is one that the laws in your state require be paid out of property in your estate that you jointly owned with a spouse, your spouse will still have to pay that debt.
- If you live in a community property state* with laws requiring that community property be used to pay off a deceased spouse's debts, such debts will not die with you. (*Alaska by signed agreement, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin)
As you can see, the risk that some of your debts will survive you is not negligible. Do you have any such debts?
Pay for funeral and burial expenses
While we don't like to think about it, funerals are expensive. Funeral-tips.com estimates that an average funeral costs from $7,000 to $10,000. Without life insurance, these costs are covered by family.
Increase financial stability
When you name your children or dependents as beneficiaries, they receive a payout when you buy a life insurance policy. If you do not have other assets to pass down, this money can help your children build a stable financial future. Beneficiaries can use the money for anything they wish, from college tuition to starting a business.
Who doesn't need life insurance?
If you have no dependents, don't plan to start a family or assume the care of anyone, and don't have anyone you want to help out when you die, you probably don't need life insurance.
If you do have dependents, plan to start a family or assume someone's care, or do have someone you want to help out when you die, a quality life insurance policy could be a great idea. But how can you find just the right one for your situation? As with most sorts of shopping, the key with life insurance is to shop around and compare what's out there.
The prospect of leaving your loved ones without financial security after your death is scary. But the right life insurance can keep your family safe.
Ready to get started? To find the perfect life insurance policy, it's important to shop around.
We recommend using the tools below to filter the insurance companies with the best reviews that offer the coverage you need. Then visit the official site using the links below and get a quote directly from the insurance company.