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Buying Life Insurance: A Shopping Checklist
When shopping for term life insurance, you want to find the right amount of insurance coverage at a reasonable price from a company you can trust. But for many people, getting started is the hardest part. That’s where the following life insurance checklist can help.
1. What would you like your policy to achieve?
Ask yourself what you want your life insurance to do. For example, do you want insurance coverage that:
o Pay for funeral arrangements?
o Pay the outstanding balance of a mortgage and other debts?
o Compensate for the loss of your income? And if so, how long?
o Contribute to the future education of your children?
o A combination of any or all of the above?
Knowing what you would like to accomplish with your life insurance policy and the approximate amount you need to achieve those goals will help you determine how much life insurance you should consider buying. Online life insurance calculators are available to help you estimate the amount of coverage you need.
2. Who do you want to insure under the life insurance policy?
Most insurance companies offer a variety of life insurance products to suit your lifestyle and the needs of your family. You can buy an insurance policy on your own life, or you can buy a policy for you and your spouse (called a joint life insurance policy). The most common joint life insurance policy provides coverage when the first partner dies, leaving the life insurance benefit to the surviving spouse.
3. How long will you need life insurance?
It is not necessary to consult a psychic, although you should estimate the timing of your life insurance needs. For instance:
o When will your mortgage be paid off? The amortization period of your mortgage will often determine the length of your term life insurance policy.
o When will your children finish school? One day, they will finish their studies and it will no longer be necessary to have enough life insurance coverage to pay their education costs.
o When do you plan to retire? You will have less income to replace at that time.
Knowing how long you will need life insurance coverage before you start shopping will ensure that you are comfortable with the life insurance product you end up buying. Online tools are available to help you determine which length of your life insurance policy is most recommended for people with similar lifestyles.
So now that you’ve answered the how many, who and how long questions, you’re ready to shop.
1. Compare life insurance quotes from multiple companies:
It pays to shop around because life insurance rates can vary widely depending on the product you choose, your age and the amount of coverage you request. This is the easy part, because with the internet, you can easily compare life insurance quotes, online, anytime.
2. What life insurance rate was offered – standard or preferential?
There are two basic life insurance rate groups you should be aware of when shopping for life insurance coverage: standard rates and preferred rates. Standard life insurance rates are the rates that the majority of Canadians qualify for, while about one-third of the population qualifies for preferred rates.
Preferred life insurance rates are usually offered to people in very good health and mean you can pay a smaller premium than most. Usually, preferential rates are only offered once the results of medical information and tests are known. This will depend on your blood pressure, cholesterol level, height, weight, and family medical history. But the preferential rates are worth it. They could save you up to 30-35% on your listed premium.
When comparing prices, be sure to compare “standard to standard” or “preferred to preferred” life insurance rates. If you are unsure, ask the broker. It would be disappointing to learn that you were offered preferential rates at first, only to find out later that you are not entitled to them.
3. Check the availability of the life insurance broker:
How easily can you get your hands on the broker? What are their opening hours? Whether through their website or over the phone, the life insurance broker should be easily accessible if you have questions or need to talk to them about a change in your life insurance needs. Look for toll-free numbers and extended hours of service as guides.
4. Review the medical information required to obtain the policy:
Generally, the more medical information you provide, the better the price. For a policy that asks few or no medical questions, you can bet the premium is higher for the same coverage than a plan asking for more information. Depending on the company, your age, and the amount of coverage you want, you may be asked to provide blood and urine samples. To obtain the samples, a nurse will come on site at no cost to you.
5. Consider the financial stability and strength of a life insurer:
A company’s financial stability is something to consider if you’re considering making a long-term purchase like life insurance. There are organizations, like AM Best, that rate insurers and assess their stability and strength.
6. Learn about renewal options and requirements:
Once the initial premium is set, it is usually guaranteed for the life of the policy (often 10 or 20 years). But what happens when the policy expires? Most policies are renewable until you turn 70 or 75, so be sure to ask your broker if you will need to pass a medical exam to renew your policy. Although your premiums will be higher at renewal, find out if they will also be guaranteed to remain stable during the second period of the policy.
7. Confirm that the policy can be canceled without penalty:
Most term life insurance policies can be terminated at any time without penalty. Be sure to check with your broker to see if the life insurance company has any unusual cancellation policies.
8. Consider the conversion options and restrictions for the policy:
As your life changes, your life insurance needs change and you may want the option to convert your coverage one day.
Converting a term life insurance policy means transferring all or part of the policy’s death benefit to a permanent life insurance policy without a medical exam. For example, suppose you originally purchased a term insurance policy to protect a mortgage and a child. Once the mortgage is paid and the child has grown, you may find it desirable to convert the policy to one that will give you a new level premium for the rest of your life, and a death benefit that is guaranteed not to expire with age.
When taking out your life insurance policy, find out about the age limits at the time of conversion. In most cases, you have the option of converting until age 60 or 65. Also, make sure you have multiple font type options you can switch to, the more the better.
Last tip – choose a life insurance broker you trust:
While this doesn’t necessarily affect the type of policy you choose to purchase, a relationship with your broker is essential for you to feel comfortable with the life insurance policy you are purchasing and the information that you have received.
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