Web Shopping

Today's Assignment

Use caution and be educated when shopping for life insurance on the web

Many companies now sell life insurance on the Web, as well as give free quotes and advice.

The key to buying on the Web is to shop by price and by the company's rating. Several agencies, including Standard & Poor's and A.M. Best, rate insurers on their claims-paying ability. Stick with companies with low prices, the term you want, and a top rating.

Here are some sites that sell the policies of multiple companies:
- Insure.com has quotes from over 90 companies and plenty of detail on the policies available.
The site also supplies ratings for the insurers from the major rating agencies, such as A.M. Best.

- Insweb has some pretty good worksheets and advice, lets you save quotes for later retrieval, and lists an 800 number.

- Accuquote has over 1,600 policies in its database. But you need to fill out a lengthy form to get a quote. The site is an independent service.

Your Health can affect your premium

Today's Assignment

Start today to improve your health and decrease your insurance premiums

The cheapest rates, known in the business as select or preferred, go to those who are in good health and who have a family history of good health.

If you take heart medication or are grossly overweight, you may pay 50 percent more than preferred rates.

If you smoke, have a risky occupation, or engage in risky sports like skydiving, you'll pay even more for life insurance.

If you fall into one of these more expensive categories, it pays to shop around. One company may charge much more than another, depending on how it estimates the risk of your condition (that's called underwriting). This is where a knowledgeable agent may come in very handy.

Internet and phone quote services aren't set up to deal with nonstandard policies.
Why, some people might ask, should I tell the insurance company about negative information that will raise my rates? Well, even if you somehow get around the medical tests and other checks done before the policy is issued, it doesn't pay to try to fool the insurer.

Insurers may investigate suspicious claims. If the company finds out you've lied, the claim may be denied, or your heirs could be tied up in court for years.

So there's a good case to be made for getting a policy early in life while you are still in good health. However, it doesn't make much sense to buy one until you have dependents.

How Long do I need life insurance?

Today's Assignment

Determine how long you will need to be covered. Consider the following:

Agents like to talk about policies you can keep throughout your life. What they sometimes won't tell you is that you don't need life insurance coverage throughout your life.

The secret to buying a policy with the right term is figuring out how long you need to be insured. You start by estimating when your children will be out on their own and no longer in need of your financial support.

So if your children are 3 and 5 now, you'd probably want a policy that covers you at least until the youngest is 22, so that's about a 20-year term. But this depends somewhat on your age as well.

Say you also want to cover your spouse for your lost income until what would be your normal retirement age, 65, and you're only 35 now. Then you would want a 30-year policy.

Keep in mind that insurance gets very expensive as you leave your 50s. So you may pay more to cover yourself until 65, even if you lock in a level-premium, 30-year policy when you are 35. Coverage past age 70 or so may be unattainable.

Life insurance is not a substitute for a retirement plan. You want to plan so that you'll have enough to live on when you retire, and you won't have to keep paying insurance premiums.
There are exceptions, however. People who start families late in life, or who have complex estate-planning issues, may well have a need for life insurance beyond the customary retirement age.

One more thing: Steer clear of so-called mortgage insurance policies, which pay off the balance on your mortgage if you die. The problem is that you are paying for a steadily declining amount of coverage, as you pay down your mortgage. It's best to include the mortgage payments in your calculations when determining how much coverage you need.

How Much Life Insurance do I need?

Today's Assignment

Consider the following when determining the amount of coverage you need:

There is no simple answer to how much coverage is enough.

Some financial planners say you need enough insurance to replace five to seven years of your salary. If you have young children or significant debt, you should bump up your coverage so you have enough to replace as much as 10 years of your salary, they say. That would mean a person making $50,000 a year should have anywhere from $250,000 to $500,000 worth of coverage or more.

Remember, the sole purpose of life insurance is to replace your income in case you die, so that your dependents can maintain their current lifestyle.

Factors to consider include whether the surviving partner will have child care expenses if one partner is out of the picture. Do you have other assets on which to draw? Will your children be out of the nest soon? These, and many other factors, influence the decision on how much coverage you need.

Buying a whole-life policy doesn't necessarily mean you are fully insured. Because of the investment component of whole life, the policies are much more expensive than term. Don't simply buy less coverage, as it defeats the purpose of buying insurance in the first place: to cover dependents.

Next, you've got to figure out how long you need the policy

What you need to know about term life insurance

Today's Assignment

Keep in mind the following when purchasing term life insurance

Buy enough term coverage to fill your needs.
Life insurance is no place to skimp, especially with rates at historic lows.

Match the term of the policy to your needs.
You want the policy to last as long as it takes for your dependents to leave the nest - or for your retirement income to kick in.

Buy when you're healthy.
Older people and those not in the best of health pay steeply higher rates for life insurance - so buy as early as you can, but don't buy until you have dependents.

Tell the truth.
There's no sense in shading the facts on your application to get a lower rate. Be assured that if a large claim is made, the insurance company will investigate before paying.

Use the Web to shop.
Buying life insurance has never been easier, thanks to the Internet. You can get tons of quotes - and avoid the pushy salespeople.

Life Insurance - your best interest

Today's Assignment

Is whole life really in your best interest?

Insurance is sold, not bought.
Agents sell the vast majority of life policies written in the U.S. because the life insurance industry has a vested interest in pushing high-commission (and high-profit) whole-life policies.

Whole life is expensive.
Policies with an investment component cost many times more than term policies. As a result, many people who buy whole life often can't afford an adequate face value, leaving themselves underinsured.

Whole-life policies are built on assumptions.
The returns quoted by the agent are simply guesses - not reality. And some companies keep these guesses of future returns on the high side to attract more buyers.

Keep your investing and insurance strictly separate.
There are better places to invest - and without the high commissions of whole-life policies.

What you need to know about life insurance pt1

Today's Assignment

Determine the type of life insurance you wish to have

There are term policies, or pure insurance coverage. And there are the many variants of whole life, which combine an investment product with pure term insurance and build cash value.