When you’re ready to put this puzzle piece into place in your financial plan, here are the top things to know as you get started.
There’s never a better time to buy than now
When you know you need life insurance, there’s a significant financial advantage to buying it as soon as possible. That’s because you won’t likely get a better price in the future, and locking in your rate now will pay off over the years. Life insurance quotes will go up every year you wait to buy.
And new health conditions in the future will add cost that you’ll pay over the duration of the policy, whether you’re buying 10 years of term life insurance or a permanent life insurance policy to last indefinitely.
In addition, life insurance rates have started to rise recently. Life insurers are adjusting pricing upward to compensate for their lower investment returns in this low interest rate environment. You can still get rates that haven’t been adjusted up, but maybe not for long.
You may be able to get a large amount of life insurance without taking a medical exam
Traditionally, buying life insurance often meant filling out a lengthy questionnaire, taking a life insurance medical exam and waiting for the insurer to get your medical records. Some policies still use this process, with the underwriting process taking a month or more.
But options for competitively priced life insurance without a medical exam have been increasing in recent years. And with the coronavirus pandemic, requiring a medical exam just doesn’t fly with customers.
To adjust, many life insurance companies have loosened their rules for who needs a medical exam. If you’re younger (say, under age 50 or 60, depending on the company) and healthy, there are options for fast life insurance that don’t require an exam. There’s also an opportunity to get higher amounts of coverage ($2 million and higher) without an exam during the pandemic.
You’re probably overestimating the cost of life insurance
Studies have shown that consumers often overestimate the cost of life insurance. The only way you’ll know how much you’ll pay is to get quotes.
Life insurance quotes are typically based gon age, gender, health conditions, family health history and any dangerous hobbies (such as scuba diving) or occupations, so each quote is highly individualized.
Don’t go it alone
If one of the things holding you back from buying life insurance is not knowing where to start, you should know that buyers should enlist help—whether you feel lost about the process or are confident in your coverage decisions.
An experienced independent life insurance agent or advisor should help you shop multiple companies for quotes and make sure that your choice of type of life insurance fits your financial goals.
Some advisors sell policies only from one company. While it can be valuable to get a price from them, you also want to know what the competition is offering.
If the price is too high, buy what you can
The free life insurance calculators available online can help you pinpoint how much life insurance you need. Your agent can also help you. If you’re buying life insurance to cover income replacement for many years and financial obligations such as a mortgage, it’s not hard to find out you need well over a $1 million in life insurance.
If you price it out and the cost doesn’t fit your budget, don’t abandon the mission. Instead, buy what you can afford now, with the plan to buy additional coverage in the future. Having some life insurance locked in is better than having none.
Don’t rely on life insurance through work
Workplace life insurance is easy to get and affordable, sometimes even free to the employee, but it’s best thought of as supplemental life insurance to a policy you buy on your own.
The group life insurance available through work ends when you leave the job. It’s also typically only available for small amounts, such as one or two times your annual salary. That won’t go very far in helping your family pay expenses for many years if you unexpectedly pass away.
It’s better to have your own individual policy in a coverage amount that’s sufficient for your needs.
Life insurance on children isn’t a good use of money
Life insurance on children is often marketed to parents and grandparents as a way to protect the child’s “future insurability”: If they develop medical conditions that make them uninsurable later in life, they’ll have the life insurance policy from childhood.
But chances are that they will be insurable later in life. For right now, money can be better spent on sufficient life insurance for the parents, or in a 529 college savings plan for the child.