Life insurance is a necessity. It can help cover final expenses, provide a savings component, and even be a source of quick cash in an emergency. All of this protection comes at a price, and life insurance can be expensive, especially permanent life insurance.
While you should never skimp on life insurance, you should shop smart. Determine your needs, shop around and look for ways to make your premium affordable over the life of the policy.
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These six tips should help you find a great permanent life policy that provides the protection and flexibility you need at a price that fits your budget.
1. Know Why Permanent Life Insurance Is a Good Buy
Permanent life insurance tends to be more expensive than a simple term policy, but if you buy a policy that meets your specific needs, it can be a bargain over the long haul.
The main differences between term and permanent life insurance are that permanent life insurance is in force for your entire life (as long as you pay the premiums) instead of a certain “term,” and permanent insurance accumulates cash value over the life of the policy.
Here are a few of the more useful features of permanent life insurance:
- It can be used as a vehicle for estate planning, trusts, or business planning.
- The premium can be adjustable or locked in for the life of the policy.
- You can borrow against the cash value if needed.
- Permanent life insurance can provide additional cash flow to cover retirement expenses.
One of the most useful features of permanent life insurance is the cash value that accumulates over the life of the policy, which can be:
- Bequeathed to one or more of your beneficiaries
- Used to supplement retirement income
- Borrowed against to cover emergency expenses
Permanent life can be an excellent investment vehicle. It guarantees your principal; unlike a 401(k) or mutual fund, your account balance is not going to tank during the next market downturn. In addition, you have access to the cash value at any point without penalties.
One of the other major benefits of a permanent policy is that you’re insured for life. As you grow older, term insurance becomes so expensive that it can be unaffordable. Even if you buy a long-term policy (30 years), once that term is up, the cost of a new term policy will be out of reach, leaving you uninsured during your retirement.
The cash component can be a financial lifesaver during an emergency or even in retirement if your savings fall short of your goals. The policy can be converted into a guaranteed income and added to your retirement savings.
Finally, a permanent policy can be an excellent tool for estate planning. It offers liquidity to help cover estate taxes, which is useful if the rest of your estate is made up of real estate or other assets your heirs would be reluctant to sell to cover the cost of estate taxes.
2. Know How to Buy the Best Policy
Half the battle with finding an affordable premium is buying the right type of policy. Knowing the advantages and disadvantages of each type of permanent life insurance is key to making the right decision. Here is a quick rundown on the various types of permanent coverage.
The two most common types of permanent life insurance are whole life and universal life. While these policies are similar, there are also major differences.
Whole Life Insurance: The benefits of this policy type include:
- Tax deferred death benefits
- Level premium: The premium stays the same over the life of the policy.
- Cash value accumulation: The cash value accumulates over the life of the policy.
Whole life offers protection for your entire life and accumulates cash value in addition to paying out a death benefit. The main benefit of whole life is stability. It offers a guaranteed rate of return for the cash value portion of the policy as well as a level premium that will not change.
Universal Life Insurance: The benefits of this policy type include:
- Tax deferred death benefits
- Flexible coverage: The policy and coverage can be changed over the life of the policy.
- Flexible premiums: There are a number of premium options. You can pay the entire premium in a lump sum or a flexible premium that adjusts within certain limits, or you can go with a more traditional level of premium.
Universal life is a much more flexible product. It’s possible to adjust both the death benefit and the premium over the life of the policy.
3. Know What Impacts Your Rates
As with all insurance products, a number of factors have a major impact on how much you end up paying for a policy. Here are just a few factors that affect your premium:
- Age: When it comes to a life insurance policy, buying early is always better. The older you are, the more a policy will cost.
- Smoking: This is a huge red flag for insurers. On average, smokers can pay up to double for comparable coverage, so kick the habit if possible.
- Lifestyle: If you’re a daredevil and most of your hobbies require signing a waiver before you participate, expect to pay more for coverage. Mountain climbers, private pilots and skydivers all pay significantly higher premiums.
- Occupation: Like your hobbies, your occupation can result in a higher premium. Firefighters, pilots, builders and law enforcement officers usually pay more for life insurance.
- Health: Life insurance policies require a medical exam. A doctor will check your weight, cholesterol, blood pressure and other health factors. If you have a condition such as diabetes or high cholesterol, get it under control before shopping for a policy.
- Family medical history: You have no control over this factor but it impacts your premium. If heart attacks, cancer, diabetes or other serious illness are common in your family, you will pay more for coverage.
- Gender: In general, women have a better chance of getting inexpensive life insurance.
- Driving record: Insurers will consider your driving record when setting a premium. Drive carefully and keep your record clean to ensure the best price.
- Bankruptcy: Credit scores don’t typically impact life insurance premiums, but a recent bankruptcy may disqualify you from getting a policy. Wait at least two years after your bankruptcy is discharged before applying for a policy.
Full disclosure is necessary when buying a policy. Omitting relevant information can result in denial of a claim or cancellation of your policy. Let your agent know if you take up a dangerous hobby or begin a high-risk job after the policy is in force.
4. Know What Costly Extras to Avoid
Riders can dramatically push up the cost of a policy, so you should pay very close attention to riders that are recommended with your policy. Avoid as many riders as possible, but don’t pass on something that makes sense for your particular situation. A few examples of riders:
- Accelerated death benefits: This lets you receive funds before you would normally be able to access them. Conditions apply and usually relate to terminal illness or an illness that requires long-term care.
- Accidental death benefits: If you die accidentally, this increases the face value of your policy.
- Guaranteed insurability: Lets you purchase additional life insurance without a medical exam.
- Waiver of premium: If you become disabled, this benefit lets you stop making premium payments but still retain the policy.
Life insurance is not a “one policy fits all” product. Working with an agent is a great way to establish a balance between managing your risk and an affordable whole life or universal life insurance policy.
5. Know How to Get the Best Discounts on Your Policy
There are a number of ways to lower the cost of your permanent life insurance. This includes everything from actively managing your health to making sure you qualify for any available discounts. Here are a few ideas on how to control permanent life insurance costs:
- Stay healthy: Your health has a major impact on your premium, so maintaining a healthy weight, not smoking and exercising on a regular basis will keep your premiums affordable.
- Pay your premiums: Once your policy is in place, make sure you pay your premiums on a timely basis. Allowing your policy to lapse due to non-payment can be an expensive mistake, as you may not qualify for a policy later in life and the cost to reinstate your policy (if that is even an option) will be pricey.
- Shop around: Premiums can vary dramatically between insurers, so shopping around can result in big savings. A Trusted Choice agent can shop a variety of insurers and present you with the best options.
- Choose the right amount: Not everyone has the same needs when it comes to life insurance, so don’t overbuy. If you don’t have to cover major debts or your spouse makes a good living you can cut back on your coverage levels.
- Buy early: The younger you are when you buy coverage the better. Premiums are lower for younger, healthier people so buy young and lock in a great rate.
- Avoid buying online: Avoid purchasing life insurance online or over the phone as this can be a scam. Life insurance can be complicated, so it is best to deal directly with an agent who can help you choose the best policy for your needs.
- Ask about discounts: Ask your Trusted Choice agent about discounts. There are discounts for government employees, veterans, teachers and other professionals. Consider buying life insurance and health insurance together, this can result in a discount.
Also, avoid guaranteed plans that do not require a physical. These policies often offer less coverage and are more expensive.
6. Know How to Work with Your Independent Insurance Agent
Consulting with an expert is always recommended when shopping for a life insurance policy, and using an independent agent will ensure you get the best possible coverage. Our independent agents are usually the best choice because they have access to a large pool of insurers and are not bound to a specific insurance company.
They can find multiple quotes for affordable whole life insurance and universal life insurance.
Permanent life insurance is great way to protect your family and build cash value that can be used in a variety of situations. A Trusted Choice agent will help you clarify your goals and tailor a policy that meets your financial needs at a price that is affordable.
Contact a local agent for personalized assistance today.