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So Good They Won’t Tell, Life Insurance Secrets

Avatar photo Eric Tomasso
7 min read

Most people don’t think about life insurance until they have to, that’s the absolute wrong way to do it. Buying life insurance becomes important as soon as someone else’s life depends on you. In this guide we outline the basics of life insurance. How much does it cost, when does it pay, how to save, and how to be clever about selecting options.

The basics

Life insurance helps families plan for final expenses. The purchaser pays  annual premiums and in exchange the insurance company will pay a sum of money to a beneficiary soon after the insured dies. The person purchasing the life insurance policy does not have to be the same party being insured. It’s not unusual for people to buy insurance on behalf of family members, such as spouses or elderly parents. Some contracts include the option to receive the payment if the insured person is diagnosed with a terminal or critical illness. Policies can also vary in length from a set amount of time or until the insured person dies.

How to shop online

Websites that compare life insurance quotes are a valuable resource. In general, most insurance companies give customers the option to calculate insurance quotes on their websites. Third party websites also provide ways to visualize and compare similar policies from different providers. The best of these websites can be used to create custom packages and then search for policies matching a list of needs.

The below table is optimized based on your location. Browse these options, click into them to learn more, and then read the special considerations below.

These are factors which may make a policy more or less expensive.

The amount you pay monthly will be determined by your response to a number of questions including: age, gender, use of nicotine, medical history, dangerous activities, driving history, and more. In general, if the insurer sees a family history with heart disease or cancer, they will ask for higher monthly payments. If you have past vehicle accidents or a history of risky jobs, such as working in high-voltage power line maintenance, these will also raise the cost of life insurance.

Evidence of smoking will raise the cost of life insurance significantly.  In fact, people who smoke usually pay premiums several times higher than those who are nonsmokers. However, even smokers can have alternatives to reduce their premiums. Not smoking for a year or more is enough to lower your rates significantly.

Where you live can impact how much life insurance will cost

For example, a company that operates in a state known for its dangerous industries, high crime or natural hazards may charge higher premiums on life insurance policies to people who are more likely to perish as a result of those risks. Most insurance companies rely on statistical data (usually “mortality tables”) to predict how much money they expect to pay annually due to policy claims. If the likelihood of certain death-related events is high, an insurance company may adjust the price of its life insurance policies to offset the additional risk.

Borrowing cash from your life insurance policy

Depending on the type, a life insurance policy can accumulate cash value, which works like a traditional bank savings account where the insurance company deposits part of the premium payments. The accumulated cash value can be borrowed by the policyholder without affecting the overall insurance policy or the death benefits included in the contract. If the life insurance policy is cancelled or the insured party dies, the benefactor receives the total amount of accumulated cash value minus penalties. In the next section, we provide extensive information on which types of life insurance policies exist.

Choosing a type of life insurance policy

Before purchasing life insurance, you should be aware of the different life insurance
alternatives that exist on the market. Regardless of premiums and special considerations,
most life insurance policies fall within one of the following categories:

  • Term Life Insurance: This type of life insurance provides coverage during a specified amount of time. The benefits of term life insurance is that due to it being contracted for a fixed number of years instead of indefinitely, insurance providers can offer much lower premium payments in comparison to an equivalent whole or universal plan. Term life insurance contracts have their downsides.
    For example, they do not accumulate cash value and premium payments will rise as the insured party becomes older to compensate for the higher risk.
  • Whole Life Insurance: Whole life insurance policies provide coverage until the insured party dies, or in some cases, is declared to be terminally or critically ill. Because this type of insurance does not expire (as long as the contract terms are met), premiums tend to be much higher than other alternatives, such as term life insurance.
    However, the extra cost is offset by additional benefits such as increased death benefits and accumulated cash value.</span >
  • Universal Life Insurance: Universal life insurance contracts blend the benefits of both term and whole life insurance into a single package. They provide coverage until death while placing part of the premium into a cash value account. The money in this account gains interest over time and can be used as a source of money if an emergency takes place. However, some insurance policies require the contract to be cancelled before the cash value is made available to the customer.
  • Guaranteed Issue Life Insurance: This type of insurance is designed to be used by older audiences, as it skips medical exams and questions. This alternative is attractive to individuals who would otherwise not have access to life insurance.
    However, it comes at the cost of elevated premiums and a much lower death benefit of up to $25,000.
  • Accidental Death Insurance: Accidental death insurance is the cheapest form of life insurance on the market. As its name implies, accidental death insurance only provides coverage to accidental deaths. It requires no medical exams or questions, and most policies offer twice the payment if the accident takes place in a commercial transportation service such as a plane or train.
  • Issue Life Insurance: There are two types of Issue Life Insurance, instant and simplified. They were designed to offer customers fast access to reliable coverage that becomes cheaper and more efficient as their health improves.
    Issue life insurance policies rely on public electronic records instead of lengthy medical exams and questions to determine eligibility and death benefits.

Special considerations

Prepare yourself physically. All sorts of health factors including weight and cholesterol will have an impact on the cost of life insurance rates. If possible, work on your health for six months to a year before applying for life insurance. People with medical conditions like diabetes or hypertension will be given higher rates if not receiving proper medical attention.

Be sure not to commit more capital than you can afford.  Many policyholders will abandon their life insurance policy after only a few years.  Purchasing a term life insurance may be a good option if you can commit to locking up funds for up to 30 years or more. During that time, term policies make it burdensome to draw cash from the fund. In contrast, a whole life insurance policy allows the insured to withdraw or borrow during the life of the policy

If you are still unsure about Life Insurance options, consider talking to  an experienced broker. Be prepared with a short list of companies and ask which of them may have the best rates according to your health profile. Another option is to do the research on your own.

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