Life Insurance Lowdown

Many of us worry ourselves silly about the type of insurance that will be best suited to our needs. And the growing number of options isn’t making things any easier. So, while we are trying to get the best bargain for ourselves, it is a good idea to arm ourselves with certain insurance terms that a consumer must know.

Agent: An agent is an authorized representative of an insurance company. This person sells and services your insurance contracts.

Accelerated Benefits Rider: Sometimes life insurance policies have various types of riders one of which is the accelerated benefits rider. This rider allows you to make an early payment of some portion of the policy’s face amount in case you suffer from a terminal illness or injury.

Another type of rider is the accidental death benefit rider: this rider provides for the payment of an additional cash benefit related to the face amount of the base policy in case death occurs by accidental means.

Annually Renewable Term: Is a form of renewable term insurance that provides coverage for one year and allows the policy owner to renew his or her coverage each year, without evidence of insurability.

‘Attained Age’ is what the insurance companies call your current age. Your attained age is one of the factors life insurance companies use to determine your premiums.

Backdating: Don’t worry, there is nothing illegal about this strategy. Here, a procedure for making the effective date of a policy earlier than the application date. Backdating is often used to make the age of the consumer at issue lower than it actually was. This was done to get lower premium.

Of course, there are many more and I shall enumerate some more very soon

The most basic reason for buying life insurance is that it serves as a tool for protecting the financial security of your family. However, pitches that portray life insurance as a souped-up tax-advantaged investment and retirement account should be taken with more than just a pinch of salt. CNN.com reports:

Using insurance policies, and particularly variable universal life policies, primarily as tax-sheltered investments can get quite complicated and involve risks that many people don’t understand. And these policies usually come laden with fees that make them quite expensive ways to invest.

Read more: Thinking twice about variable universal life

As times and lifestyles change, so do the needs of consumers. Responding to these changing needs , the life insurance industry is now developing some exciting alternatives. These alternatives go much further in satisfying a variety of financial needs and objectives than traditional types of insurance and annuities. Montgomeryadvertiser.com reports:

Modern contracts offer much more financial flexibility than traditional alternatives. For example, universal life and variable universal life insurance policies allow you to adjust premiums and death benefits to suit your financial needs.

Read more: New life insurance products offer more flexibility

There’s no doubt about the fact that term life offers one of the best value-for-money investments in the entire financial services arena. With a term life policy, you can literally get hundreds of thousands of dollars in protection for just a few pennies per day. Well, that was a bit of an exaggeration, but you get my point don’t you?

And the best thing is that today, the rates for a term life insurance policy is at its lowest ever. If this isn’t reason enough for you to go get yourself a policy, I don’t know what is. However, even though prices are low, it doesn’t mean that you can walk into an agreement with your eyes closed. A little exploration can help you get the best deal for yourself. Forsalebyowner.com reports:

Check for price breaks. Companies often offer “price breaks” at certain coverage amounts (e.g., $250,000 vs. $225,000). The truth is that many people can actually pay less money for more coverage. Check how little your prices increase when you increase coverage to $250,000, $500,000, or $1,000,000.

Read more: Term Life Insurance: Money Saving Tips

Most of us do pay our premiums but grudge it because, "We are after all paying for something we are never going to use." Be honest with yourself, this thought has crossed your mind at least some time. Well, let’s take a look at the scene from the other side of the fence with Derrick Wesley, an insurance agent. Southbendtribune.com reports:

“The perception that the insurance companies are making all the money is hard to overcome sometimes. But if your house is destroyed by a fire, it is there when you need it. Otherwise you couldn’t afford the $200,000 to replace it. So you have to have it.”

Read more: Insurance agent helps plan for life events

Sen. Al Lawson, D-Tallahassee, a Big Bend legislator recently asked Gov. Jeb Bush to help head off a huge increase in life insurance premiums for retired state employees. According to Lawson, Bush is said to have agreed to explore options for addressing a pending rate hike from $4.20 a month to $35.79 monthly for retirees carrying $10,000 in coverage. Tallahassee.com reports:

The Department of Management Services this month notified retirees that they would either have to pay the increase, or cut their coverage to only $2,500 if they wanted to keep the $4.20 monthly premium.

Read more: Lawson asks Bush to help state retirees with life insurance premiums

If you are purchasing life insurance for the first time, you are probably worried about your medical reason. Don’t worry; it’s just a routine examination, which allows the life insurance company to judge how much premium to charge a potential policyholder. If the company determines you are likely to die at an early age, they will want to collect more premiums early in your life. But if they feel you will live longer they would not need to collect as much from you in the early part of your life because you will be around longer to continue to make premium payments.

Life insurance companies use two factors to judge how long a potential policyholder will live:

• Longevity Charts — These are just statistics on the mortality rates of people. These charts give the insurance company a general idea of the ages at which men, women and children die. These figures help the insurance company assess its risk when taking you on as a policyholder.
• Your Medical exam and History is the second factor. Usually your medical exam is done in the privacy of your home or office.

Insurance is designed to protect one from catastrophes. One thing you need to realize is that it isn’t necessary to buy every type of insurance available. However, if you do need insurance, don’t shirk this duty just because it’s another job you gotta do! The problem with insurance is that there are so many myths floating around that many people are quite confused and this may be one of the reasons why many people still remain uninsured. This time, I am going to touch upon two such myths. If you believed in any of them, it is time to change your outlook. So please read carefully:

I NEED Life Insurance: This is a myth that has been propagated by life insurance companies to increase their sales. Fact is not everyone needs to have a life insurance policy. Yes, you heard me right — life insurance is designed to take care of your dependants after your death. So, who exactly is a dependent? Usually spouses, children and parents… anybody who will be affected by the loss of your income. So, if you don’t have any dependants, then why are you paying those hefty premiums?

Only earning members need life insurance: Agreed, this is a great ego booster, but reality can bring you down with a thud. Your spouse may be a stay-at-home mum/dad. Just imagine how much this person is reducing your expenditure by multitasking. Childcare, housekeeping, food preparation, home accountant, and school transportation — all this would cost you a bomb if you tried to get it done outside. So, if the absence of your spouse and any other member of your household is going to cause you a financial hardship, go ahead and insure them as well.

You’ve probably been asked by your life insurance agent to buy ‘permanent’ insurance such as Whole Life, Universal Life or Variable Universal Life. Their reasons sound quite compelling and you feel that it may be in your best interests to take such insurance. However, there are quite a few things your insurance agent may not be telling you. There are two broad categories of life insurance—term and permanent. The basic idea behind life insurance is that if you die prematurely, there will be a pot of money there to take care of your loved ones. That pot of money is known as the ‘death benefit’.

On the surface, it may seem that there shouldn’t be a lot of difference between the premium on 20-year term and a universal policy with the same death benefit. But reality is quite different. Seniorjournal.com reports:

What your insurance agent isn’t going to tell you is that the commission on permanent insurance can be around 70% of the first year premium and then maybe 5% a year on additional premiums. Commissions on first year term premiums can be as high as 100%. In our example above, the agent will make about $5600 on permanent versus only $1400 on the term. This higher commission is a tremendous incentive for agents to sell permanent insurance instead of term.

Read more: Beware of Universal Life Insurance: Part 1

Insurance can be a costly affair. The price you pay for life insurance will depend on various factors including your age, health and habits. While term life insurance does offer attractive rates when compared to life insurance, it’s still important to shop around for the best policy available. Otherwise you may end up paying a lot of money for a cover that is not half as good as it could be.

One of the biggest mistakes people make is to take up the first offer they get. If you want good terms, you have no choice but to look around and know more about the rates offered by various insurance companies. Most people don’t know that term life insurance policies can vary by 50 percent for the same coverage! Shop around for the best rates at InsWeb’s quick and easy online marketplace.