8 Questions for your life insurance agent
Life insurance is an important purchase you can make to protect the livelihood of your dependents. Because life insurance can be a daunting subject, you may become overwhelmed by your coverage options and put off purchasing a policy altogether. Unfortunately, avoiding such an important discussion can be costly and damaging in the long run, especially if the unexpected occurs.
Remember that a policy that works for someone else may not work for you, so just like when you buy auto or homeowners insurance, discussing your specific financial situation with an insurance professional is essential. If you're looking for life insurance, here are eight crucial questions to ask your life insurance agent to ensure you get the right coverage.
What kind of life insurance policy should I get?
To begin, it is critical to understand the various types of life insurance coverage available. There are two types of life insurance available: term insurance and permanent insurance.
A term insurance policy provides coverage for a set number of years and will pay out a death benefit only if all other term provisions are met. Term policies are typically purchased with a specific goal in mind, such as financially supporting a child or covering a mortgage payment. Depending on the type of policy you purchase, the death benefit of a term policy can either remain the same or decrease over time.
Permanent life insurance, on the other hand, is a policy purchased to provide a death benefit upon the death of the insured—regardless of how long the insured lives. Permanent insurance is more complicated than term insurance because it comes in several forms, including whole, universal, and variable universal. While traditional policies have a fixed premium and death benefit at the time of purchase, variable and universal policies can vary depending on the market.
How much life insurance do I need?
One of the most frequently asked life insurance questions is, "How much life insurance do I need?" The answer depends on two major factors: how much it will cost to pay off your debts, including your mortgage, and how much your dependents will need to maintain the same standard of living after you die. Although all companies take these factors into account, insurance providers frequently use different formulas to determine your specific insurance needs.
Understanding your life insurance needs is critical, especially for families who have unusual debts, such as large medical bills, that may be overlooked by a basic-needs formula. Insurance advisors recommend that you assess all of your debts and go over your financial goals to determine the amount that best meets your specific needs. You can better determine what type of policy to purchase once you are confident that your insurance agent is considering all of your current and future financial needs.
How much does a life insurance policy cost?
The cost of your life insurance policy will be determined by a number of critical factors. Your life insurance agent will need to know your age, gender, lifestyle, the type of life insurance you require, and your medical status, which may necessitate a medical doctor's physical examination.
These factors are used by life insurance companies to determine your risk level. Anything that may have an impact on your health, from your job and hobbies to your driving record and smoking habits, can raise your risk level and influence the cost of your insurance policy. You can expect your life insurance premium to be higher if you are determined to have a higher risk level.
While knowing how much coverage you require is critical, you should also know how much coverage you can comfortably afford when shopping for a policy. Though the average monthly cost of life insurance is $40 to $55, your premium may be much higher or lower depending on your current risk level and the type of policy you choose. Permanent insurance policies are typically more expensive than term insurance policies.
Does the policy provide living benefits?
It's a common misconception that life insurance only pays out in the event of death. Many life insurance policies, you may be surprised to learn, also provide living benefits such as borrowing against the policy's cash value.
Living benefits differ from company to company and may be available to the insured while they are still alive. Some common living benefits provided by some life insurance policies are as follows:
- Early pay: This is a benefit available to insureds who have been diagnosed with a terminal illness that helps cover medical costs and care. The percentage of the benefit is determined by your policy and company.
- Long-term care: If the insured becomes unable to provide basic care for themselves and requires assisted living, the long-term care benefit may allow them to use their life insurance policy to help pay for that care.
- Short-term care: If the insured is injured or suffers a temporary impairment, this benefit may help cover the costs of care in the short term.
It is important to note that some of these benefits may be included in the life insurance policy, while others may be purchased separately. If you are interested in these options, speak with an insurance professional to find out where they are available.
What life insurance benefits are guaranteed?
Before purchasing life insurance, read your policy thoroughly to understand what benefits are guaranteed in the event of death. When you get a quote, your life insurance agent may give you a document called a "life insurance illustration" that details the expected value of your policy, depending on how long the policy is active.
However, the economy can cause significant fluctuations in projection values, especially when policies are variable. When reviewing your illustration, pay close attention to the "guaranteed" figures and ensure that you are comfortable with them.
When can I expect returns?
This question does not apply if you are considering a term life insurance policy. If you are thinking about purchasing a permanent life insurance policy, you should be prepared to wait several years before your policy begins to generate positive returns.
Permanent life insurance policies are long-term investments that are typically purchased as a safety net for unexpected life events rather than for financial growth. Payments are applied directly to the policy's premium for the first several years, so it may take some time for your policy to accumulate cash value or generate a positive return.
What if my health changes?
Unless you purchase a guaranteed-issue policy or life insurance through your employer, you will almost certainly be required to undergo a medical examination. Your health may improve or deteriorate over the course of your policy. In some cases, such as if you no longer smoke or have left a hazardous job, you may be able to go through another medical evaluation and underwriting process, which may result in a lower premium.
Policyholders, particularly those with term life insurance, should also inquire with their agent about what might happen if their health deteriorates or they become disabled. It may be worthwhile to purchase a convertible term policy if your health deteriorates during the policy term and you later discover that you require ongoing life insurance coverage.
Even if you do not purchase a disability rider or a separate disability insurance policy, some life insurance policies provide benefits to policyholders who become disabled. In the event of a disability, this benefit may include a waiver of premiums. Because each company defines “disabled” differently, it is critical to consult with your life insurance agent about which additional riders should be purchased.
What if I need more coverage in the future?
Your life insurance requirements may change as you get older. Your life insurance policy's terms and conditions may also need to change. The idea behind a term life insurance policy is that your need for insurance will disappear or be reduced by the end of the policy term. If you still require life insurance near the end of your term, most term policies will allow you to convert to a permanent policy. However, conversion premiums can become more expensive as you get older.
When you are young and healthy, insurance policies are generally the cheapest. Although you may not have a mortgage or children when you purchase your insurance, it is critical to consider these potential life changes and future financial needs when deciding what type of policy is best for you. Choosing the right policy now can save you money and headaches later on.