Things You Should Know About Life Insurance Before You Buy
Life Insurance. With countless misconceptions and preconceived ideas about what it is and how it works.
In a recent online workshop I attended, several people spoke up, saying they would be open to discussing life insurance IF the information was easy to understand and presented in a way not meant to scare them. I get that. Before I became a life insurance agent, I didn’t know any of the most crucial information about life insurance. So, I ignored it. Like so many other people out there ‘adulting.’
What I did “know” about life insurance is most likely what the general public assumes: life insurance is a contract that I pay for that gives my beneficiary (spouse, kids, grand-kids – maybe even my dog) whatever sum of money the benefit is when I die (death benefit).
So…great for the kids (or the dog), right?
But I’ll deal with insurance later. Right now, I have to deal with “(insert whatever it is that most adults in the US are doing today that takes precedence to looking at their mortality; paying for the house, paying for school, paying for all the kids’ activities, paying off student loans, vacations, etc.).”
There is a quote I read recently that truly applies here.
Life insurance doesn’t have to be this taboo subject. It doesn’t have to be complicated. If you do a little bit of reading, work with an Agent you feel is trustworthy or has a good reputation and knows what they are talking about and takes the time to work with you to make sure you understand your options, you can avoid making some of the major mistakes made by people who don’t know or understand what they are buying.
After working with clients and answering some of the same questions repeatedly, we thought the best idea would be to create this simple guide to help you side-step some of the biggest reasons people avoid getting life insurance or make mistakes in buying a life insurance policy that doesn’t meet their needs.
1. Buying Online Rather Than Finding a Life Insurance Agent You Can TrustBuying a life insurance policy online is risky
A. Instead, Create and Build a Relationship with Your Agent
- Keep their contact information and use it
- Ask questions until you get answers you understand
- If their team doesn’t have time for you, there may be a problem
B. There Can Be Issues with Buying Life Insurance Online
- Most consumers don’t recognize what their policy has and what it doesn’t have
- There may be significant omissions or misunderstandings in the contract you intend to purchase
- You don’t get the opportunity to establish a relationship with your agent
- Typically, you will end up changing your policy at a later time, and this is an expensive mistake
When you are sick, you go to the doctor. When you have a toothache, you see the dentist. The same is true for Life Insurance. Life Insurance is a specialty – not a “side product.”
Most in-house insurance Agents who qualify to sell life insurance (it’s a separate license from other insurance sales), sell what the company they work for tells them to sell. That’s what they are employed to do and under contract to sell.
The opposite applies for independent life insurance Agents. We study policies (or should anyway) and work to be able to offer our clients the best contracts at the best prices. We choose to be independent for a reason.
Because we take the time to create relationships with our clients, our personal experience is that our clients call when questions come up. We get calls from clients or their family members at all hours of the day and night, asking if their policy covers X issue or is adequate now that X thing has happened in their life. They know to call when they have questions and need answers. Our clients know they’ll get the help they’re looking for when they call.
This is one reason to create a relationship with your Agent. Another is so that when a life event happens (you have a new baby, buy or sell a house, critical illness, chronic illness,etc.), you can call your Agent. They should be able to pull up your policy and help you make decisions about how to move forward with your life insurance policy, so you have an appropriate policy for the best cost.
When you buy a policy online, chances are very high that you will not get this kind of client support. And, if your in-person Agent isn’t giving you this kind of support, find one who will. That is their job.
2. Shopping For the Cheapest Premium
A. Failing to Compare the Policy Rather than the Premium
Often, you get what you pay for – or don’t get what you don’t pay for
- Buying the least expensive policy you can find, will most likely give you the least amount of coverage available and may expose your loved ones to the most pitfalls and financial stress
- Buying your life insurance policy in tandem with your car insurance, homeowners insurance, or other insurance to get a lower rate may sound good in theory, however, these policies are most often bare-bones life insurance policies without adequate coverage and will more often than not have significant downsides and loopholes that cause frustration rather than give proper coverage
- If you are comparing Premiums rather than Policies, you are doing yourself and your loved ones a great disservice. There are a multitude of affordable life insurance policies on the market that give excellent coverage and will cover you and take care of your loved ones financially.
**NOTE** You can research the insurance provider – look for the AM Best Rating.
There have been many times that we have been able to help one of our clients find a better policy than the one they currently had for less premium than they were presently paying.
B. “Pro’s & Con’s” of Working with a Life Insurance Agent
- It seems easier to “shop online” for a life insurance policy
- I don’t have to take time off from work to shop online for a life insurance policy
- I don’t have to deal with a pushy salesperson when shopping online for a life insurance policy
- You are not building a relationship with a life insurance agent that can help you navigate issues as life changes, and you need and should make changes to your current policy
- Your life insurance Agent is continuously educating themselves on the contracts that are available in order to make certain they are offering sound products to their clients
- Your life insurance Agent has studied and knows the language and intricacies of the contracts in life insurance; they know what to look for regarding missing pieces and important information
- Many independent life insurance agents will work to meet their clients around their clients’ schedule. If you don’t have a life insurance agent that will work around your schedule – FIND ONE!
**NOTE** REMEMBER – A decent life insurance agent is busy so it may take them some time to get you into their calendar, but they should be willing to meet you after hours and during times that work for you
Don’t let the spammy emails and television commercials fool you with their “$1 a day” life insurance. Make sure that you do your homework.
A plan directly connected to a volatile market may not create the financial safety you were expecting.
- Even though several policies may fall under the same general category, life insurance policies are NOT the same from one company to another.
- Some policies are simple and straight forward; some have optional riders or additions that your agent can add, but know that you will pay extra for them.
- Some policies are relatively inclusive, while others may be somewhat exclusive.
- Some policies are overpriced, however, make sure that when you are shopping for a life insurance policy, you are comparing features, not just price. Because, most often, you get what you pay for – at least in a well written and robust life insurance policy
If you need help making comparisons, ask a life insurance Agent you are currently working with to help you compare and understand. If they can’t or won’t help you, move on to someone new. Find an Agent that will educate you in your life insurance decisions.
3. Failing to Truly Plan for the Future
Life Insurance Isn’t Just About Death
Life insurance isn’t just about today, next year, or the next ten years. For the majority of American’s, life insurance is a life-long subject. It should be treated and purchased as such and be able to change with you.
A. You Don’t Want to Talk About Death or Dying
Studies tell us that as many as 1/3 of those without life insurance don’t have a policy simply because they don’t want to talk about death or dying
There’s another way to look at life insurance –
actually, there are several.
- Look at life insurance as a gift of love to your family and loved ones. This choice will be one of the final gifts you will be able to give and can be one that, if done right, can help your loved ones financially for years to come
Creating a Financial Safety Net
- There are life insurance policies that create a financial safety net. The plan is there if you should pass; however, the policy can also keep you and your family financially protected if you become critically (heart attack, stroke, cancer, etc.) or chronically (require long-term care) ill. With this type of life insurance policy, you would then have access to your benefits, while living, to take care of living and medical expenses. Having this safety net can drastically reduce the stress on you and your loved ones during times such as these
Creating Your Legacy
- What is it that you are working to provide and create for yourself and your family?
- What would you like them to be able to carry forward?
- How can you best set them up to be able to do so?
B. Look at the Whole Picture
- What are you creating today – both income and debt?
- What your family looks like today – working and not?
- What are you working to support?
- What would the cost of critical (heart attack, stroke, cancer, etc.) or chronic (long-term care) illness be?
- What would it take to replace the loss of your income or to replace the loss of a caregiver?
- What do you want for your retirement? Putting some time and thought into answering this question will be a determining factor in your final life insurance benefit amount. What $50,000 will buy today, may not buy much in 20 years and may not last very long
C. What Are You Working to Create?
- What are your goals and plans for 10, 20, 30, and 40+ years?
- What are your income projections?
- What are the forecasts for your investments and other streams of income?
- What about your significant other, what would the cost be to cover their contributions to your family?
D. Do you or will you have financial responsibilities? Are these a probability or even a possibility?
- Do you, or will you have a home mortgage?
- Do you, or will you have business debt?
- Do you, or will you be caring for elderly parents or grandparents?
- Do you, or will you have children to care for or help through college?
E. Do you Have Transportable or Convertible Disability Insurance?
- There are Life insurance policies that work as both disability insurance and life insurance
- Some of these types of policies also allow you to take all of your paid premiums back at 20 or 25 years if you decide you no longer need this insurance
- Some of these policies are also guaranteed and not tied to the stock market or any other volatile index
F. Do You Have Transportable or Convertible Life Insurance?
- This type of policy will most likely be a term policy, and at the renewal point,
the rates will go up
- Many of these types of life insurance policies are employer-provided policies, are minimally funded and written to terminate every year or every five years. Each time a Term life insurance policy renews, your rates increase because your age advances, and it becomes more likely that you may begin to have health concerns
I. Do You Get Your Current Health, Disability, and Life Insurance Through Your Employer?
- There are a lot of generally unknown drawbacks to employer-provided life insurance. Often the coverage is not nearly enough to be adequate. Additionally, these policies are typically Term Life Insurance policies that are renewable every year or five years, and each time the policy is renewed, the rate, or premium you pay, will go up because your age goes up. Additionally, employees may or may not be able to transport or convert the policy if they leave the employer or lose their job.
4. Waiting Too Long To Get Life Insurance
You Are Not Too Young (Or Too Old)
To Buy Life Insurance
A. Making Assumptions
- Because of the daily flood of information, it’s easy to assume that you have a decent understanding of a particular subject.
- The reality is unless you are a student of or a professional in any given subject, it is more likely that you may have some understanding, but you are missing vast amounts of critical material.
- People DO and SHOULD buy good and comprehensive life insurance policies in their 20s and carry a form of that policy throughout their lifetime
- If you do not have life insurance by the time you are in your 40s or 50s and are not independently wealthy, you can still qualify and should nonetheless buy life insurance
There are times that we have met with a potential client and recommended that they do not need to buy a life insurance policy. There are times when this is the appropriate answer.The Younger You Are, The Less Expensive Your Premiums
The Younger You Are, the Less Expensive A Life Insurance Policy Will Be
It makes a lot of sense when you think about it. The dilemma that we see in this age of information overload is people are putting important things like getting life insurance off to deal with some of the more immediate and in-your-face kind of concerns like paying off student loan debt. And, there is an issue with some in distinguishing between the immediately “important” (the new cell phone), and the long-term important (the investment of a robust and comprehensive life insurance policy).
The problem with this is, you get better premium rates the younger you are. The typical scenario seems to be something along the lines of “I’ll pay off my student loan debt, (or travel, or… insert whatever more important thing you can come up with) in my 20s and get more serious about my future in my 30s.”
The drawback to this type of thinking is that most of us are typically quite healthy in our 20s and would qualify for surprising premium rates. By the time we are in our 40s, even if your health is still relatively good, your costs are going to be higher. It’s the way life insurance is structured.
Now, this doesn’t mean that if you’re in your 30s, 40s, or even your 50s or more, that you shouldn’t still try to get life insurance. By all means. You should. Everyone that needs a policy should have a one. Everyone should protect their loved ones from the costs involved in taking care of final expenses, as well as debt and other unknown factors.
But the healthier you are, and the better your Agent knows what is available on the market, the better your policy will be for a reasonable premium.
What this means is that the later in life you wait to get your life insurance, the higher your monthly premiums are going to be – however, good health is a factor.
5. File and Forget
Like Forgetting to Put Gas in Car
If you were on a long trip, let’s say a road trip over the summer, through several states to visit state and national parks, and forgot to put fuel in your vehicle, after a few hundred miles, your vehicle could not continue to serve it’s intended purpose. It’s good to refuel and check things out once in a while.
It’s good to review your life insurance policy every few years
Hall Benefits Life Insurance Agents have talked to their fair share of clients who forgot they even had a life insurance policy in place until some type of life event came up that jogged their memory.
The reason that it’s such a good idea to form a relationship with your life insurance agent is that they are, or should be, your advocate to the world of life insurance. Life insurance agents are required to update their education continuously. Your agent should be able to look at your policy, know what it contains, and what you are not covered for and help you understand this.
All too often, people get a policy, put it in a file drawer and forget all about it. Life moves forward. Life changes. Maybe they buy a house, get a better job or position, get married, or have children. Most likely their lifestyle changes over ten years.
You should be going over your life insurance policy on some kind of regular basis. So that you know what you have, what you don’t have, and if you have what you want and need for the life you have today and the future you are planning.
Life changes dramatically in 10 years. Your life insurance should meet your lifestyle and life needs. Your life insurance agent can work with you to make sure that this is what happens.
Now, this doesn’t mean that you should CHANGE your POLICY every X number of years. What is means is that you need to make sure that you have adequate life insurance coverage rather than what you would now consider minimally required coverage because your initial policy wasn’t all that great, and no one was paying attention.
If you purchase a well-written life insurance policy early on, you will most likely have a policy that can change as your life’s circumstances change. THAT is the benefit of working with a good life insurance agent.