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Life Insurance
Who needs life insurance?
Look at a few demographics that benefit from having a life insurance plan.
Unmarried moms
Millennial moms in their 20s and 30s may think they are too young for life insurance, but financial advisors say new parents often need life insurance the most. Over 40 percent of babies in the U.S. are born to unmarried women, up 10 percent in the past decade.
Stay-at-home parents
Stay-at-home parents still gave financial value to their families. A death to a parent may force finances to go towards day care or nannies. While a huge life insurance policy may not be necessary, there is a policy that fits the financial needs of a family.
Older couples
A life insurance policy is great when looking to provide extra money or cover unexpected medical costs for a spouse. Couples are buying homes later in life, meaning mortgage payments run beyond their 50s. Parents are having children later too, creating a surge in college tuition bills while caring for their own parents.
Businesses
A common reason to buy life insurance has to do with business. A partner in a small business and the success of the business relies significantly on the ability to bring in clients and money. Some buy life insurance policies that name their business partner as a beneficiary. In many cases, business lenders require the borrowers to carry life insurance in the amount of their loans.
How much life insurance do I need?
Having dependents, you should plan to buy enough to replace the income generated by you. Having a plan to cover family expenses that may be unexpected provides a comfort amongst your family. At a minimum, plan for $15,000.
An example of how much life insurance to get
Suppose a 36-year-old widow did not work and had two children, ages 4 and 1, in her care. Her deceased husband earned $36,000 at death and covered by Social Security but had no other death benefits or life insurance.
The life insurance amount needed today to replace the monthly income is at least $360,000. Adding $15,000 for funeral expenses brings the minimum life insurance needed for this example to $375,000.
But that is not the end of the story
Some people like to use life insurance to pay off the home mortgage at the primary income earner’s death, so they are less likely to lose their home.
If the mortgage balance is $200,000, then the amount of insurance jumps to $575,000.
What about college tuition for the children?
Some people want to send their children to college out of their life insurance policy. Let’s assume that each child will attend a public college for four years, costing $15,000 per year. If life insurance were purchased, the additional amount of insurance needed would be $200,000. The insurance amount needed is $775,000.
Valuable reminders
- In emergencies, having life insurance is better than having none. Don’t put off the decision.
- You can layer coverage using multiple policies, if you didn’t buy enough coverage the first time, you can get additional coverage through another policy.
- Perks and rewards are secondary to premium amounts and coverage, but different insurers offer them.
What is the underwriting process?
- Height
- Weight
- Current health
- Medical history
- Family history
- Occupation
- Hobbies
- Driving record
- Whether you have ever smoked
- Whether you have piloted a plane
What the insurance company may want to know about you.
Based upon your age and the amount of life insurance you are applying for, you may have to get an exam. The medical exam is conducted at no cost, and normally is done by a paramedical examiner at your home or business.
You may also be asked to additonal exams or tests:
- Provide a urine sample – The urinalysis will screen for indications of such things as nicotine and certain drugs, elevated sugar levels, and signs of kidney disease.
- Take a blood test – Blood tests screen for abnormalities that might be indicative of a variety of medical conditions, or the current status of known medical conditions, such as kidney or liver disorders, cholesterol levels, or diabetes.
- Take an electrocardiogram (ECG) – An ECG screens for irregularities such as an irregular heartbeat or rhythm, or a decreased supply of blood and oxygen to the heart.
- Take Various Senior Assessment testing – These tests will be performed on clients ages 71 or greater. It may involve cognitive, mobility and frailty testing.
The insurance company may ask about your income. Including any investments, household income, and financial worth.
How the insurance company may rate you.
Underwriters classify life insurance risk in categories known as a rating class. Underwriting rating classes include:
- Preferred – You are a low risk. You are not sick, don’t have a high-risk job or hobby, and have a clean bill of health. You pay a lower premium.
- Standard – You are an average risk. You may have had some health issues in the past, but don’t have a serious illness or a high-risk hobby. You pay an average premium for similarly situated insured parties.
- Substandard – You have a chronic illness like diabetes, heart disease or high blood pressure. You pay a higher premium.
Note: If you have or have had an illness or health condition, it is best to work with a professional insurance agent who will obtain quotes from insurance companies whose underwriting allows for such risk.
What are the common mistakes made when buying life insurance?
So you purchased a life insurance policy. Now what? Make sure to avoid the common mistakes many make when purchasing life insurance.
Procrastinating or waiting to obtain coverage
Waiting to buy coverage leaves your loved ones and assets vulnerable in the event of a unexpected loss. Life insurance premiums increase as we age, buying now rather than later will save you money.
Purchasing an unsuitable term length or coverage amount
How much coverage do you need? For how long? There are plenty of variables to consider when shopping for life insurance. Coverage amounts of $250,000 or $1 million can sound like fortunes, but some discover too late that the amount of money they purchased doesn’t cover everything they had intended.
It’s important to figure out your current expenses and accurately assess future costs. Remember, licensed life insurance agents will help you at no cost.
Relying solely on employer coverage
Employer-provided life insurance is a great benefit. In some cases, it does not offer enough financial protection. While a perk, it is not based on your specific needs. Having a personal life insurance policy can secure enough financial protection, while tailored to your specific needs.
Assuming smokers or people with health problems cannot get coverage
Policies are available for smokers and those with health conditions. Honesty with your agent allows for them to provide you with appropriate coverage.
Medical exams reveal tobacco usage, including nicotine patches. Quiting smoking and improving your health allows for lower rate opportunities.
Insuring only the primary breadwinner
The importance of recognizing those who maintain a healthy home creates financial value. Individuals without employment but caring for children and elders, can create significant expenses with an unexpected passing of life.
