Life Insurance. COST SAVING METHODS EXPLORED...
How much is enough? How Much does it cost? Are there living benefits? How long do I need it?
These are all typical questions when searching for life insurance. The answers to these questions could save you thousands. Improper life insurance planning can be inefficient to say the least. We are going to explore plan design and premium as it relates to this in order to help consumers understand cost structure and benefits. There are many cost factors that consumers should consider prior to purchasing life insurance. I will expand on these and how they relate to your premiums. Please keep in mind that we are focused on how they relate only to premium for this discussion.
HOW MUCH IS ENOUGH? The traditional school of thought is anywhere from 4-10 times your income depending on your situation. For example, if you are the sole income provider for a family of 4 or more then somewhere around 10 times income may be warranted depending on your debt structure. However, if you have a split household income with no dependents closer to 4 times may be a better solution. Let's assume for this conversation that you need 10 times the amount of your income. This way we can make assumptions without further reference. We will assume 1 income with a family of 5 (3 children)...
HOW LONG DO I NEED LIFE INSURANCE? Think in terms of dependent needs. It may be that the kids will be out of the house in 10 or 20 years, or it may be that you have a lifelong dependent such as providing for a spouse for life. The structure of your life insurance should mirror your goals as it relates to your dependents. Ask yourself who your dependents are and how long you would like to plan for providing for them in the event you die prematurely. Have the answer? This answer is one key to the structure of your life insurance policy. Lets use a combination for this discussion. We have 1 income and we need life insurance for 20 years for the children and income replacement for life for our spouse. Obviously, it only makes sense to purchase life insurance for the time you need it. If life insurance is needed for 20 years for the benefit of the children, then purchase 20 year term for that purpose. On the other hand, if some of the need is permanent then purchase a permanent product for this portion of the need. Too many times I see people purchasing life insurance for the "sizzle" of the cash value, or the potential "long term cost savings" of permanent insurance. Simple rule of thumb, purchase life insurance for what you need and no more.
HOW MUCH DOES IT COST? There are basically 2 types of life insurance available to most people. Term Life Insurance and Permanent Life Insurance. As described above each has a much different value proposition. I am going to make a generalization in order to get the point across on the pricing and what best fits you. If the same 35 year old male were to purchase both term and permanent life insurance and cancel the policy after 10 years the cost would be significantly different. 'Term insurance is pure insurance cost, which is to say that you pay a premium and get life insurance in return. If you don't pay the premium for the life insurance it is gone. It is the least expensive UP FRONT cost for life insurance. Permanent life insurance premiums are designed to last an entire life and the premiums are comprised of, at least, insurance cost and cash value. If the same 35 year old male purchased term life and permanent life for 50 years and canceled it, it's fair to assume the cost of the term insurance policy will be far more expensive. The reason is simple. The permanent life insurance premiums are designed to be level for your entire life. Because of that, more premium is charged early in the policy years so that later the extra premium and cash value can reduce the cost. For example, term life cost for a 35 year old male might be $14 per month and the permanent insurance premium might be $100 per month. That's a big difference in premium for 1 month of coverage. However, $100 per month when you are 65 for the same permanent life insurance policy is very inexpensive. Likewise, a 65 year old male will pay a much a higher monthly cost for term life insurance. In summary, effective plan design can be an important factor when it comes to your life insurance program.
HOW DO I GET THE LOWEST PREMIUM? Now that you have determined how much you need and designed it to fit your needs, all that remains is getting the best bang for your dollar. How do you find the cheapest cost? First, you must know your health "rating". Life insurance carriers rate premium on life expectancy or "rating". Once you know this, you can search carriers that give the most competitive rates based on the factors that effect your health "rating". For example, one insurance carrier may give more favorable rates for those that use tobacco, while others simply do not want to give good rates for tobacco users. Another example is if a person is in excellent health there are carriers that give "best in class" rates. Your insurance professional should research what company best fits you in this regard.
Please contact us to discuss how we may help you purchase your life insurance