It goes without saying that investing in life insurance is a big deal. Life insurance is defined as a bipartite contract between an insurance policy holder (an individual) and an insurer (an organization), where the insurer promises to pay a pre established beneficiary (often close family members like wife, children, husband, or parents) a pre decided sum of money (the benefit) in exchange for a periodically paid premium, upon the death of the insured policy holder. The policy holder typically pays a periodic premium (say monthly or yearly) or a one time lump some payment towards the insurance policy. Since it is a considerable investment, at the end of the day, no one wants to purchase the wrong insurance or pay for a plan that’s far beyond their needs.
Keeping that in mind, here are 20 tips to help you get the best insurance for your needs.
Image courtesy: Forbes Blog
- You need to meet certain eligibility criteria if you want to insure someone
Some people, especially wives, and kids, get coverage from a family member’s insurance. If you are a dependent who is availing benefits from your family member’s name, then you will have to prove that you will need financial assistance when the insured is not around.
You’ll have to get permission from the one who is availing the insurance after which the life insurance company will assess the medical history of the person. The Health Insurance Portability and Accountability Act states that insurance-seeking people must sign a written consent seeking the release of their medical records. Even if your insurance company doesn’t require the insurance-seeking person to sign the document, he or she will have to sign the new policy.
The same is the case even with employer insurance where the spouse or any other dependent is covered with some basic benefits. As a dependent, you will be entitled to receive the benefits when the insured has applied the policy benefits for you after you’ve given him or her permission in a written consent.
- If your insurance claim has been rejected, look for other companies
After all, insurance companies consider a range of factors to determine the eligibility of a person. Some are liberal, while some are very strict with their terms and conditions. Just because some X company has turned down your application, it doesn’t mean that you are ineligible for insurance. Make sure you keep trying. Get in touch with multiple other companies until you get insurance for your needs.
It’s just like shopping for a gadget. When one doesn’t suit your budget or interest, you look for other brands, right? Same is the case with insurance. Shop around until you get the best plan, the best premium, or a perfect combination of both. If you are a healthy person, then you can boost your chances of qualifying for heavily discounted premiums by providing your health report generated by fitness apps. This is where genetic testing becomes more common.
- Ask yourself if you really need an insurance policy
Getting life insurance is always a good idea, but it’s also important that you figure out whether you need it or not. For instance, if you have enough money in the bank to live the rest of your life without any external financial assistance and when there is no one dependent on you for their financial needs, then it would be better not to purchase life insurance. Probably property insurance or business insurance might be what you need in that case.
However, if your spouse, children, parents or siblings are dependent on you for their expenses, then purchasing life insurance makes more sense.
- Term insurance or whole life insurance
These are two different types of insurance offering a whole different range of features specific to timeframe, so it’s important that you study both of them in detail and figure out what is best for you.
To help you get started here is a quick briefing of the two: term insurance plans come with lower premiums and provide coverage for a specific timeframe only (as mentioned in the plan). Because it is valid only for a certain period of time, it is called term insurance. Another thing is that you can’t borrow or withdraw cash against the policy.
Whole life insurance is valid for your entire lifetime, and one of the biggest benefits of this insurance is that it offers you “cash value”. It is also called permanent and cash value insurance. It will cost you more in the beginning, but it’s worth your money in the long term. When the insured passes away, at a young or old age, the benefits of the insurance can be availed by his/her family member provided premiums were paid on time by the insured.
Note: Even in whole life insurance, there are three different categories offering a different set of benefits and they are called whole life, universal, and variable life insurance.
- Your beneficiary doesn’t have to be financially dependent on you
At the time of the insurer’s death, if the beneficiary is financially stable, then he/she can have the amount donated to a charitable trust, and that’s all legal according to the law.
- In case your beneficiary is financially dependent on you, then make a rough calculation as to what sort of expenses need to be covered when you pass away in an untimely manner.
The primary benefit to your beneficiary is the amount that he or she will receive at the time of your death, which will account for his/her expenses. If your coverage isn’t adequate to cover your beneficiary’s additional expenses like education fees or medical treatment, then it would be a good idea to provide them with some extra savings while you’re around.
- Don’t neglect these expenses while determining your insurance coverage needs
No one forgets to consider factors like daycare, mortgage, education, and health care expenses, however, when you are nervous like other first-time insurance buyers, it’s likely that you might miss out a few things. Make sure you don’t miss coming up with an estimate of your other calculations. For more clarity, you might even categorize them as short term and long term expenses.
- Look at your life insurance policy as a source of financial protection and not an investment
Let’s make one thing very clear. Your insurance is not an investment. Yes, there are certain insurance policies that accumulate cash over time and give you the extra option to borrow money against your deposit, however, in the real sense they are not to be mistaken for actual investments like fixed deposits or real estate assets.
There have been cases in the past when agents have pressed insurance buyers into purchasing policies promising to give higher returns, which equals bank investments. If you are offered something along the lines of your insurance policy yielding high returns in the long term, make sure to cross-check the information and ask the agent to give you the same in writing.
- Know what is and isn’t covered by your insurance policy
Although it’s commonly advertised that insurance policy offers monetary compensation in the event of death, please keep in mind that most policies don’t pay when the death happens in a war or due to suicide or airplane accident.
- Educate yourself about the many purchase options or riders that can be added to a standard policy
If you are looking for something more than just the basic benefits mentioned in your policy, then don’t hesitate to go for additional benefits for some extra expense. Your agent will be able to help you with the necessary details pertaining to extra benefits for your plan. This takes time, though. Make sure you compare multiple plans and discuss various options with your agent before zeroing in on a policy.
For example, in certain conditions, some riders will allow you to leverage the benefits of your policy before you die. And there are other types of riders that will insist on after-death benefits. It all comes down to determining and choosing what you want.
- Talk to family and friends if you need recommendations regarding insurance companies and agents
Not all agents will be willing to tell you the finer details of your policy. At the end of the day, their job is to ‘sell’. The other best source you can rely upon for advice is your family, friends, and relatives. Check out if any of them has availed life insurance, and if so what do they think are the best policies for your needs.
- Make sure any insurance agent or company is licensed in your state
Most importantly, seek the assistance of your state insurance department to find out if the insurance company or agent you’re going with is licensed and authorized to offer the said policy.
- Be prepared to answer some health-related questions
It’s very obvious that before giving you the life insurance policy, your agent might want to confirm that you are in the pink of health. The healthier and fitter you are, the stronger are your chances of qualifying for insurance, and that too on a lower premium. Provide your agent with all the details they need with your health status.
On the other hand, keep in mind that providing false information about your medical condition could mean your insurance application getting rejected or your beneficiary not receiving the benefits of your policy. Being honest is the best way to go about it.
- Two things to consider before purchasing the policy
There are two more things you need to consider before signing your insurance application: (1) Will you be able to afford the initial premium? (2) If it increases at a later stage, will you still be able to pay on time?
- Make sure you understand the renewal policies related to the plan you’re considering
You can avail added benefits to what’s already there in your policy by going for add-ons for an extra payment, but that also means that you will be paying higher premiums after upgrading your policy. Make sure to get more details on renewals and add-ons even before purchasing your basic life insurance policy.
- Read the fine print
Even if you are getting all the required details from your agent, it’s important that you read through the details mentioned in your policy. You might get a lot of questions as you start reading the terms and conditions. One of the most frequently asked questions by first-time insurance buyers is “will my premium and benefits vary from year to year?”. It’s also worth knowing in advance how much benefit will accumulate over time and how quickly they will accumulate.
- Keep the paper and receipt safely
Keep all the documents handed over to you by your insurance agent. They might include important details about your policy and different types of coverage. Keep them as a reference for future, so that in case you wish to switch plans or upgrade, you can always check back on the documents. Don’t hesitate to take print out of e-receipts. That is the most important proof you have to highlight your payments made to the broker.
- Be careful before cancelling your existing insurance policy
Although you have the option to switch plans, don’t forget that upgrading to a new policy is an expensive affair. Be patient and thoroughly review your old and new policy before determining whether you should get rid of your previous plan or not.
Here’s some bonus information:
You’ll be given some time (usually ten days) to understand the details of a new policy after applying for it. During that time, if you feel it isn’t right for you, you can tell your agent to cancel the policy and give you a refund.
There is another scenario where you can have your existing policy along with the new one. But yeah, you will have to talk to your agent and figure out what the various possibilities and options are and then find out what’s best for you.
- Don’t hesitate to ask questions even if they are silly
Remember, the role of an insurance agent is to answer your queries and assist you in the best possible way. Don’t hesitate to ask any question, even if you feel it’s silly. It’s important that you clear all your concerns before signing the papers.
- Pull out your policy and review it every year
Your family might grow or shrink in size, and your financial needs may vary year after year. So to ensure that things are on track with your insurance needs, it makes sense to review your policy on a yearly basis. This can help you keep up with changes in your income, inflation, and other financial commitments.
Agreed, no one likes to talk about death at a young age. However, being honest about life and financial planning can put you in a better position to meet unexpected financial losses that may happen at the time or a sudden illness, disability, or death. Your chances of securing your loved ones from financial difficulties are pretty good when you have life insurance rather than not. Think over it, and make a smart choice!