Even if you aren’t required to take a medical exam, you should.At the outset of just about every life insurance policy,
“Full underwriting (with the use of a medical exam) takes more time, but it’s likely to result in significantly lower premiums.”
Tony Steuer, CLU, LA, CPFFE Founder, The Insurance Literacy Institute
Creator, The Insurance Consumer Bill of Rights
Your driving record and credit score matter, too.While age and health make up the lion’s share of your premium value, there are other significant risk factors that companies weigh. If you have poor credit, or a history of traffic violations, those can drive up your premiums. Likewise, if you have a job that consistently takes you to dangerous locales, or requires a lot of flying, you might be perceived as a bigger risk and have to pay more for insurance.
You and your spouse should each buy a term policy.If you’re the primary breadwinner in your family, with a spouse who takes care of the home, you might not have considered the real cost of replacing the work he or she does. Chances are, it’s more than you think. For the past few years, Salary.com has surveyed more than 15,000 stay-at-home moms. In 2016, it found that the 10 most frequent responsibilities (things like day care, driving, tutoring, and cooking) totaled up to a market value of $143,102 a year! This might be what you’d have to pay outside help in their absence — reason enough to buy a separate term policy.
Think carefully about how much life insurance you really need.Maybe you’ve heard that you should multiply your annual income by 10 to get your life insurance face value, but five seconds probably isn’t enough to spend calculating something so important.
First, consider your long-term debts. Do you have a mortgage that will require payments for the next 25 or 30 years? What about student loans, medical expenses, and credit card balances? If you have kids, are you planning to pay their college costs?
Then ask yourself how much it takes to sustain your household at your current spending habits.
It’s also worth considering buying a larger death benefit than your beneficiaries will need because life insurance benefits are paid out in a tax-free lump sum, and if invested, can reap a significant amount of interest even in the very first year.
For example, a $2 million death benefit, if invested at a 5 percent annual rate of return, would earn $100,000/year if left untouched. Take the cost of inflation into account, too. I really like Amica Life’s rider that automatically increases the death benefit to keep its purchasing power consistent with inflation.
Don’t assume you’re covered through work.My friend and his wife are pregnant with their first child right now, and I dutifully reminded him that he should probably buy life insurance. He said he’s covered through his employer-sponsored plan at his architecture firm, but I told him not to be so sure.
Most employer plans carry a death benefit of far less than you would want your dependents to have, and they’re also not portable if you switch jobs. It’s great if you have employer-sponsored life insurance, but you should probably supplement it with a policy of your own.
Do yourself a favor and work with a broker.Insurance brokers (people who sell insurance for multiple carriers) sometimes get a bad rap because they work on commission, and if they’re slimeballs, they can push an expensive policy that you don’t need just to get a heftier cut of the action. But most brokers aren’t slimeballs, and they can be a huge help. Brokers not only can quickly sift through hundreds of options to find the policies that best fit your needs, but also know which companies are likelier to offer you the lowest premium. How?
They’ve reviewed insurance policies every day (probably for years), so they’re familiar with the specific underwriting criteria of various companies — which ones are more generous on height and weight tables, or which ones are particularly strict about driving records. You also won’t save money by not working with a broker. Insurance companies assume a broker fee when they set their premiums, so even if you buy your policy through a website like Policygenius.com, your premiums will be the same as if you worked with a broker. The only difference is where that commission money goes.
Maybe you’ve heard that you should talk to a fee-only financial planner instead of a broker. While it’s true that fee-only advisers don’t receive commission from insurance companies, that doesn’t mean they don’t have some other arrangement that incentivizes them to suggest certain policies. Plus, a fee-only adviser only makes recommendations, leaving you to purchase the policy yourself (and pay the built-in commission). Even though brokers are paid on commission, that doesn’t mean they won’t give you good advice. Just make sure they’re licensed to sell life insurance in your state, and they don’t have a disciplinary record. Both of these pieces of info are publicly available from your state’s Department of Insurance.
“Insurers are constantly adjusting their underwriting criteria to take advantage of trends or make themselves more competitive in a particular demographic. A good broker will be aware of recent changes that could save you money on your policy.” Shannah Compton Game, CFP, MBA Chief Millennial Money Strategist at Your Millennial Money