Decoding Life Insurance Quotes: 4 Tips

Life insurance is (or should be) an important part of nearly every household's financial plan. If it's not part of your family's financial base, it may be that you find life insurance too confusing or complex or maybe you're just adverse to the idea of considering the topic of your own or your spouse's demise. These are not uncommon reasons for avoiding the subject of life insurance.

Who Needs Life Insurance?

Simply stated, life insurance is an obligation for anyone on whom someone else is dependent for financial support. Whether this dependent is a spouse, a child, a parent, a sibling or a partner, if your death would mean a significant financial loss for another person, you need to have life insurance. If you're retired with a secure income or independent financially and no one would suffer financially at your sudden death, then you probably don't really need life insurance.

Two Types From Which To Choose

Life insurance is divided into two types – whole-life (permanent) and term-life. Term life is the least expensive and simplest form. With term life, the insurer sets the cost of the policy according their perceived risk of your dying within the term, which is typically 10, 20 or 30 years. If you die within the term of the policy the stated death benefit is paid to your named beneficiary.

Permanent insurance uses the same “risk of death” assessment for helping determine premium cost but also features a savings component, referred to as the cash value. You'll find three types of permanent life insurance – whole life, universal life and variable life. What differentiates these from one another is the way the cash value funds are handled.

Decoding Life Insurance Quotes

Here are four tips for decoding life insurance quotes:

1.     Use an independent broker with access to multiple life insurance companies to get multiple quotes side-by-side.

2.     Life insurance costs are determined by your age and health. This is a competitive business and most life insurance companies offer about the same policy costs.

3.     Insurance costs are the same whether you buy online, from an independent agent or straight from an insurer. There may be differences, however, in service quality. An independent broker can help you find the best companies.

4.     If you have a particular health issue, your broker can steer you toward an insurer that may be more lenient to individuals with your condition.

What's the Cutoff Age for Life Insurance?

If you're inching toward that milestone age of 50-years, you may believe the cost of buying life insurance once you've reached that magic number will increase substantially - some believe as much as 50% or more. This isn't true. While it's true that life insurance does become more expensive as you age, it does so at a somewhat consistent basis.

As a rule of thumb, insurance premium rates are most affordable for individuals aged 20-30 years, assuming you're a non-smoker in good health. For those in that age group, premium costs rise very little from year to year. Once you're into your thirties, rates start increasing regularly and when you're in your 40's you'll see even more substantial increases, even if you're still in good health. Costs will increase to even higher levels if you suffer common health issues that will prevent you from qualifying for a preferred rating. Some of these could include:

• Weight gain
• Increased cholesterol numbers
• Increased blood pressure
• Hypertension

Who Really Needs Life Insurance Later in Life?

There are a variety of reasons for purchasing life insurance, with the main reason being to provide security after you're gone to those currently dependent upon your income. Many individuals get their first insurance policy when they get married and start a family, which typically happens when they're in their 20's or 30's. With couples now having children later in life, however, it's conceivable that you may have dependents counting on your income well into your 60's. You may also have outstanding debts such as a large house payment or substantial car payments that you're reluctant to saddle your loved ones with when you pass on.

No matter what your age, if you have financial responsibilities and/or dependents relying on your current income that would be curtailed should you suddenly die then an investment in life insurance makes good sense.

What's Available?

There are two major types of insurance – temporary (term life), and permanent (whole life). Term life provides higher death benefits at lower premium rates and policies are written for a specific period of time (term). If you pass on during the set term, death benefits will be paid to your beneficiary. Although cutoff ages to qualify for term coverage vary from company to company, here are some typical figures:

• 10-year term, age 80
• 15-year term, age 75
• 20-year term, age 70
• 25- or 30-year term, age 55

5 Reasons to Consider Whole Life Insurance

Back in the 1990s there was a move afoot in the U.S. that had people cashing in their whole life insurance policies in favor of a strategy called, “buy term and invest the difference.” This advice became popular because people realized how much more expensive whole life insurance was to purchase compared to term life and, although whole life policies contain a cash accumulation component lacking in term policies, this accumulation was slow and at only a slight interest rate compared to what was possible to make at the time in mutual funds or in stocks and bonds.

When the dot.com bubble burst in the year 2000, with the NASDAQ falling as much as 78%, many who had bought term and invested the difference saw the floor drop out from under their feet. While there are no guarantees in investing, the cash accumulation associated with whole life policies is guaranteed to increase each and every year for the rest of the policyholder's life, regardless of what the markets do. That's a big plus.

Whole Life vs Term Coverage

The major draw to obtaining term life insurance is that you can obtain a much higher death benefit for the same amount of premium you'd pay for whole life coverage. This makes the coverage attractive to younger individuals on a tight budget with a growing family to protect. The downside is that this premium level is only guaranteed for a certain “term,” after which the premium payments will increase. You'll also have to re-qualify for a new policy and any existing medical problems acquired could conceivably stand in the way of getting that new policy.

The premiums on whole life coverage are guaranteed for life, as long is your policy remains in force. You'll also never have to re-qualify for coverage even if subjected to failing health. Here are some other major reasons to consider whole life insurance coverage:

1. Your cash value won't be subject to losses in the market.
2. Any dividends you may receive aren't taxable.
3. You have access to your cash value at any time and for any reason you choose. This is without paying any taxes or paying other penalties.
4. Your insurance is guaranteed for life as long as you keep your premium payments current.
5. Benefits paid upon your death to your named beneficiaries are tax-free and guaranteed.

Here's more information. Consult an insurance professional for the whole story.