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The classic and best reason for an individual to buy life insurance is for protection against dying too soon. The person buying life insurance should be primarily concerned with seeing that his or her survivors do not face a financial handicap. Beware of anyone who tries to sell you life insurance as an “investment”. Life insurance should be purchased for the protection it will give you.

Know the company you are buying from.

You can check the financial stability of any life insurance company. See our link on Insurance raters. Each of these sources are considered as reliable in the industry.

Shop for rates.

We highly recommend that you obtain multiple quotes. Life insurance is a competitive marketplace, and much of the competition focuses on price. Don’t hesitate to seek premium quotes from at least 3-5 different companies. Remember, compare apples and apples.

Never buy a policy you don’t understand.

If you are given illustrations, charts or booklets, save that material with your policy. Ask your agent to explain the policy terms to your satisfaction. If you can’t get sufficient answers, then shop elsewhere. Also make sure you understand the guarantees in your policy (not just the agent’s promises of returns) and the surrender penalties if you choose to drop the policy at any time. These costs are often hidden in a life insurance or annuity policy.

12 ways to save money when buying life insurance.

  1. Here are a few ways to save money when buying life insurance:
  2. Consider term life insurance.
  3. Seek out no-commission policies. Either “no-load” or “low load” that have fewer expenses built into them.
  4. Don’t buy a guaranteed issue policy if you are healthy.
  5. Get multiple quotes and compare carefully. Online shopping is easy, quick and efficient.
  6. Improve your health. Having a health problem can make it hard for you to buy life insurance. High blood pressure, diabetes and heart disease are among the conditions that can make life insurance companies reluctant to sell you a policy. So, if you are a smoker, stop. If you drink heavily, scale back. If your blood pressure is high, opt for the appropriate medications. Exercise.
  7. Don’t buy more or less insurance than you need.
  8. If you need more life insurance, get a rider as opposed to getting a new policy.
  9. Buy your insurance as soon as the need exists. Remember, the younger you are, the cheaper your rates. If however, you have no dependents, your money might be better spent somewhere else.
  10. Check your credit report. Insurance companies look at your credit. If your credit is poor, you could be denied coverage or placed in a higher risk class because the companies will be concerned you will let the policy lapse due to non-payment of premiums. The reason for this is that during the early years, Insurance companies experience much higher up-front costs including commission they pay to agents.
  11. Check out fractional premiums. Once you find the best policy for your needs, find out if you can save money by the way you are billed. Some insurers charge you less if you pay annually and more if you pay monthly.
  12. Save money after you’ve bought a life insurance policy. If you have been put in a relatively expensive rate class by your life insurance policy does not mean you have to stay there. You can apply for a rate reconsideration in a year or two once you have established a history of controlling your blood pressure, cholesterol, or any of the other controllable rate increasing factors. Many insurance companies will be willing to lower your premiums.

How much life insurance do you need.

Consider adding your short term needs plus long term needs less available resources. This method is probably the most accurate. Short term needs may include such things as funeral expenses, payoff of car, monthly income till your spouse can comfortably find employment. Long term needs may include college tuition for children, house payments, etc. Resources would include CD’s, other insurance, annuities, mutual funds, etc.

How often should you evaluate your insurance needs.

Most experts advise you to do an analysis at least once every three years, or whenever you have had a major life change. For example, if you have a new baby, you have to recalculate college education needs and child care costs. If you own a home, a mortgage is likely your biggest financial burden. Because your mortgage balance decreases with each payment, it is important to include those revised figures in your calculations. Many insurers will gladly cut you a break on your premiums if you share in the risk. One way to do this is to limit the maximum amount of potential liability the insurer will face.

Five steps to a needs analysis:

Most experts advise you to do an analysis at least once every three years, or whenever you have had a major life change. For example, if you have a new baby, you have to recalculate college education needs and child care costs. If you own a home, a mortgage is likely your biggest financial burden. Because your mortgage balance decreases with each payment, it is important to include those revised figures in your calculations. Many insurers will gladly cut you a break on your premiums if you share in the risk. One way to do this is to limit the maximum amount of potential liability the insurer will face.

  • Step 1: Add up all your short-term needs. This will include all outstanding debts, funeral expenses, medical and hospital bills, executor fees, court costs, attorney fees, credit card balances, outstanding loans and other bills. Include in this also a cash reserve for medical emergencies and repairs to your home or car.
  • Step 2: Next, add up your long-term debts which will include your mortgage and college tuition. Some of this may be tricky, but if you consider that the cost of education is skyrocketing regardless of whether the student attends a college at home or out of state.
  • Step 3: Next, calculate family maintenance expenses. This will include such things as childcare, food, clothing, utility bills, entertainment, transportation, maintenance. Then annualize this number and multiply it by the number of years you want to provide this income. Once you have completed this, you can add you short term needs, long term debts and family maintenance expenses together (you are going to be amazed at the number).
  • Step 4: Now that you have tallied all of your income needs, figure out what resources you have to meet them. To do this, add all available savings, stocks, bonds, mutual funds, other life insurance, Social Security (you can find this out by contacting the SSA or visiting the social security website.
  • Step 5: Subtract your resources from your total expenses. The figure you get should represent the amount of life insurance you should buy.

What if you can’t afford the amount of insurance you need?
Don’t be discouraged. Many times the number you come up with can be quite alarming. Here’s a few suggestions.

Go through the 5 steps again. See if there is anything that can be eliminated.
Do the best you can. Maybe what you have to do is start a plan. If you need $800,000 in total insurance, but can only afford $300,000. Then get the $300,000 and strive to add riders over the coming years….until you have achieved your goal. Remember, Rome wasn’t built in a day.

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