Life Insurance Lowdown

Do you need life insurance and if you do, how much coverage is enough — these are questions that every person who’s taking out a life insurance policy for the first time, asks. Every situation is different. The answer depends on your income, savings, lifestyle — to name a few things. But there is a rule of thumb — Financial professionals generally advise that your coverage equals eight to 10 times your gross annual income. Fortwayne.com reports:

If you are taking care of the children, then you need to figure out how much your surviving spouse would pay each year to have the children looked after. If you are planning to return to work in a few years, you need to calculate your future earnings that your spouse would lose.

Read more: Out of the Red: When duty calls, so does life insurance

Are you one of those people who place implicit trust in their insurance agent? Don’t worry, you’re not alone. Most people tend to let their insurance agent prepare their insurance policy and then walk out the door with it, without even the murmur of a question.

You may not face a problem now, but when the time comes to file your insurance claim, you may be in for a shock. Here are a few steps that will help you ensure that your policy is tailor-made for you and fulfills your requirements:

Read: Read your insurance policy. The insurance policy is the written agreement between you and the insurer. It puts the entire agreement in black and white and if you can check it to see if the policy has the coverages you paid for.

Understand: Reading involves understanding. So if you find that there are terms and jargon you cannot fathom, don’t hesitate to ask your insurance agent. They are not doing you a favor by sitting that extra time with you; you are paying them to explain the entire thing to you. So don’t hesitate.

Ask: After you’ve spoken with your agent, you feel you need some more time to review your policy, find out what time frame the insurance firm offers for a review. Some policies provide a free look period during which you may cancel your new insurance policy and get a refund.

Document: Keep all receipts and transactions between you and the agent. It is also important to document all vocal and written statements between you and your agent. This way, if your agent has promised you a particular coverage but not included it in your new insurance policy, you have a chance of getting that coverage if you need it when filing an insurance claim.

Did you pay all your bills this month? Don’t worry, I’m not trying to spy on you. But there are some people (rather companies) who are doing the spying. Yes your insurance company wants to know if your credit score is all right. Unfair? You bet! Do you have a choice? NO. Personalinsure.about.com reports:

Missing as little as two payments on credit cards or other financial obligations could lead to your insurance premium possibly doubling. If your credit score is bad you could pay more when getting an insurance quote.

Read more: How Your Credit Score Can Change Your Insurance Quote or Insurance Policy

You probably know that annuities are a good insurance means. But usually, most people don’t know much else about this form of investment. So let us examine the common types of annuities on offer in the market. One of the most common types of annuities is the fixed annuity. With a fixed annuity, you will pay a fixed amount each month. Quite a few people treat a fixed annuity as a personal pension plan.

The other type is the variable annuity where the amount you collect each month depends on the performance of the stocks, bonds, or other investments in the underlying portfolio. This amount is variable. Then there are annuities indexed to stock market performance. They are known as equity-indexed annuities. They are supposed to shield the investor from stock market losses by going up when share prices rise but not dropping when they fall.

Insurance is not something you would like to think about in your free time — unless of course you work in the business. As for the rest, most people generally tend to think about them only when forced to, like the time when they come up for renewal. How you update your life insurance depends on what type of policy you have. For term life, do a quick comparison of premiums to see if yours are still competitive, especially if your insurer raises them more than you expected.

Now, with term life policies going dime a dozen, you really don’t need to stick with an insurer who charges you the skies for your term life insurance. All you need to do is make a quick check of the scene and find the insurer who will give you the best terms. If you want to check multiple insurers and want your quotes in real time, I’d suggest you search for your insurers online.

For whole life, get rid of riders you no longer need. Pay off any policy loans that are earning less than the interest you are paying on them. If you find you don’t need as much coverage as you’re paying for, ask your insurer if you can reduce the face amount — known as a partial surrender — but watch out for extra fees.

And don’t cash in a policy without considering a 1035 tax-free exchange. That will let you transfer your money to another insurance policy or to an annuity and continue to defer taxes on any gains made within the policy.

First, the good bit: The insurance industry has always been an excellent provider of protection products, serving our population well and flourishing as a result. And now, that people are living longer, there are some among us who may be outliving our need for our death protection products. Many senior people are now wanting to exercise the option of having cash to maintain a quality of life over an expensive life insurance policy.

So how do you work out a solution that could be beneficial to both insurers and insured? One way is to use life settlements or secondary market. This option has become a very viable way for those clients who no longer have a need or beneficiary for their life insurance. With this option, they can convert their death benefits into a living benefit. This way, they can enjoy their wealth and use the money to provide for life’s necessities. Thebusinessledger.com reports:

While life settlements are not for everyone, they do promote the process of receiving fair market value for a life insurance policy that the policyholder wishes to sell. However, the insurance industry has been resistant to this concept.

Read more: Insurance Industry Must Work on “Quality of Life” Products

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. Personalinsure.about.com reports:

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 try to accurately judge how long a potential policyholder will live with two factors: Longevity Charts and Medical Exams and History.

Read more: What to Expect: Your Life Insurance Medical Exam

You have done well in life and want to pass on your assets to your spouse, younger generations, or favorite charities. You have two options to do this — you can either assign your assets to beneficiaries through a will and/or a trust OR, you could use life insurance products. The benefit of doing this is that you can create wealth with this tool and thereby increase the amount passed that is passed on to your recipient. Personalinsure.about.com reports:

Single premium life insurance is a valuable investment when it comes to wealth creation and transfer. With this type of life insurance, a single premium is deposited, creating an immediate death benefit that is guaranteed until the owner passes away.

Read more: Transferring Wealth with Life Insurance

I think I have been writing pretty regularly about different types of life insurance policies and how you MUST take a policy. But what happens when your spouse or someone else who has taken a policy, passes away? When a loved one dies, the last thing on your mind is filing a life insurance claim. But you must, because the insurance was taken to benefit you. This is an act of love and must be understood and accepted as such. While filing the life insurance policy claim can be confusing and difficult, don’t forget, it can relieve great financial burdens for your living family. Luckily, the process is quite simple. Here is a checklist of steps to follow in case you need to file a life insurance policy claim:

Firstly, if you know that your loved one has taken a policy, ensure that it has been kept in a safe place. It is important that you have the actual life insurance policy with you in order to file. However, if for some reason you cannot locate the policy, contact the life insurance agent or life insurance company that your loved one may have used. If that doesn’t work, try contacting the state insurance department in the current state or any other state your loved one may have lived in.

Once you have the policy, call up the insurance agent or firm, which will hand over certain life insurance claim forms that you need to fill out. These forms are usually quite simple, but if you do find yourself confused, don’t worry. The life insurance company or life insurance agent can help you complete them. Once you’ve done that, you must send a certified copy of your loved one’s death certificate with the life insurance claim forms to the life insurance company. Now it will take anything from a few days to a couple of weeks, for your settlement to be issued.

It is nice to know something about the history of life insurance and how it works to know the type of insurance that is best suited to your needs. For example, ever wondered why the cost of insuring your life is so low? Sherlock Holmes would’ve said ‘Elementary’, but I’d like to use another word: LLN. The Law of Large Numbers or LLN allows insurers to spread risks over large numbers of insureds. This ensures that any one individual’s cost to cover a risk is considerably lowered.

However, the older we get the probability of our dying increases. So, life insurers are forced to charge you more money every year as you age. This cost of mortality, which goes up annually within every type of life insurance policy, is one of four cost components that determine the premium that you pay. The other components are overhead, commissions and profit. Elpasotimes.com reports:

An alternative to annual renewable term is decreasing term insurance. It has an annually decreasing death benefit for a level annual premium and is appropriate for paying off debts.

Read more: Find which life insurance works for you