Need help finding the “best life insurance policy in 2016”?
As many as 4 out of 10 Americans do not currently have life insurance. Two of the biggest reasons why people don’t have life insurance are:
Let’s clear the air to help you decide which is the best life insurance policy for your family.
Quick Guide to the Best Life Insurance Policies 2016
- Choosing the Best Life Insurance Policy
- Choosing the Best Term Life Insurance
- How Much Life Insurance Should You Buy?
- How Long Do You Need Life Insurance?
- Which Type of Term Policy Should You Buy?
- Permanent Life Insurance
- Permanent Life Insurance Choices
- How to Find the Best Life Insurance Policy in 2016
There are 2 main types of life insurance policies for 2016 which you can consider which include:
• Term Life Insurance
• Permanent Life Insurance
Before we talk about the different types of life insurance, you have to understand why you need life insurance.
The majority of Americans want life insurance for the following reasons:
• Income Replacement
• Cover Personal Debt
• Business Purposes
• Mortgage or Rent
• Leave a Legacy
• Funeral and Burial Expenses
If you are a low or middle income earner and don’t anticipate building an estate, Term life insurance will suit most of your needs. You can become “self-insured” by investing into a 401(k) and/or IRA to build your nest egg, so when your Term policy lapses, you will essentially be financially self-sufficient.
So, let’s talk about how Term life insurance works.
Term insurance is the easiest to understand and to find the best term life insurance quotes for 2016, all you have to do is decide is:
• How much you need
• How long you want the insurance in place
• Who is going to be the beneficiary
• What Type of Term Insurance You Should Buy
Let’s talk briefly discuss the 4 decisions mentioned above.
As a rule of thumb, most experts suggest that you should choose a policy that would cover between 6 – 10 times your current annual salary. Most people want life insurance for income replacement especially if they are the primary breadwinner in the family.
- NOTE: You should also check out our handy “Life Insurance Tools” to help you out!
Take time to think about what you need and whatever you do, don’t just pull a number out of the air because it sounds good to you. Nearly 6 out of 10 Americans who have life insurance are under-insured!
A $1 million policy might sound like a lot, but when you factor everything into your calculations, such as annual inflation, it might be a better choice than going with $500,000. This is especially true if you want to cover your children’s tuition and pay off the house.
Many American families have two breadwinners, and ideally both should have life insurance. Even a stay at home spouse should have a policy, especially if there are children. The loss of a homemaker will cause additional financial strain should they die first.
It’s not just income replacement alone that should be the basis for your decision. You should also consider all current and future debt, because these figures add up quickly and have to be paid when you pass on.
Tip 1. Do not buy no-medical exam life insurance if you are young and healthy. The coverage amounts are quite a bit lower and these policies can cost as much as 3 times more than what you would pay for a traditional term policy which requires a medical exam.
One thing to keep in mind about Term life insurance, is that when a policy expires, and you want coverage to continue, you will have to renew it. The way that underwriters rate you is basically determined by your current age and health.
Term life insurance becomes increasingly more expensive as you age (particularly if you are older than 35) and even more so if your health begins to decline. This is why you have to choose the length of the term carefully.
Different companies offer different term lengths. This is a crucial factor when deciding whether you should buy a 20, 25 or 30 year term. Be sure to get the coverage you need.
TIP 2. Consider buying a Term policy which is “Convertible” or “Renewable.” Many, but not all term policies sold today, are convertible which means you can automatically convert the policy to “Permanent” life insurance without having to undergo a medical exam (you must convert before the expiry date outlined in the policy). “Renewable” simply means you may automatically renew the policy – also without having to obtain a medical exam. Your premiums will be based on your current age for both policies.
Naming Your Beneficiary
You may name 1 or more beneficiaries on a life insurance policy. Do not name your beneficiary as “Your Estate” or “Spouse”, as these could lead to tax and/or legal complications at a later date. Name specific people and use full legal names.
Just make sure you update your policy promptly as circumstances change.
If you’re still not clear about what Term life insurance offers, then let’s clear that up simply by saying that term is the most basic and affordable life insurance to buy. It costs about 1/10th of what you would pay for the same death benefits coverage for a Permanent policy such as Whole Life or Universal Life.
You buy it for a period of time (which is why it is called term) and it covers death benefits only. That’s it in a nutshell!
Most Americans believe that all Term life insurance is the same.
There are actually 3 types of Term life insurance including:
• Level Term Insurance – The most popular type of life insurance currently being sold. Both your death benefits and the premiums paid are generally fixed (make sure you enquire about this as some insurers do sell policies where premiums are increased).
• Decreasing Term Life Insurance – Here, the death benefits decrease over designated time increments throughout the life of the policy, but the premiums you pay remain the same. Many people use this type of policy to cover their mortgage.
• Increasing Term Life Insurance – Only a few companies offer these policies but they are useful for those starting out on a tight budget. This policy will see the death benefits “increase” at various time increments with a corresponding increase in your premiums.
Tip 3. Consider buying a “Return of Premium” rider. One of the big complaints about Term is that you spend all this money and see nothing if you survive to the end the term. With a “Return of Premium” you will be refunded all the premiums you pay when the policy expires. Choose carefully because they can be a bit pricy and costs vary. Some of these types of riders will not pay for the cost of the rider itself, while others will.
Here, at Huntley Wealth we only suggest these types of policies be purchased by those who:
- Are in higher income brackets;
- Have an estate;
- Need additional venues for tax shelters; and/or
- Have business agreements in place such as Bonus Incentive plans.
The difference between Permanent life insurance and Term is that Permanent policies not only provide you with death benefits, but offer the following:
• Lifetime Coverage
• Cash value component
Many “company” life insurance agents will try to sell permanent life insurance to those who do not really require these policies. They cost as much as 10 Times more than what you pay for the same amount of term life insurance coverage.
Another drawback to permanent policies is that premiums for the first year go to pay commissions. Further, the majority of your premiums over the first 10 or so years are used to cover death benefits and administration fees so there is little value in terms of cash accumulation until later.
Commissions vary by policy and company, but life insurance agents often receive 80% to 100% of the first year’s policy premium as commission. Life Insurance Agents and Commissions. What You Should Know. Aubrey Cohen, Nerd Wallet
However, if you stick with this policy, you will begin to reap some financial advantage with the cash value accumulation. Other benefits of permanent policies include:
• The option to surrender the policy
• The option to borrow against the policy
If you max out your 401(k) or IRA, then permanent policies can be advantageous as a tax shelter. The cash value accumulation is also non-taxable. Permanent policies are distinctly advantageous in providing immediate liquidity if you have an estate and will need funds to pay federal or state estate taxes.
So, for some Americans, there are major advantages to buying these policies.
These are very complicated products which come in many variations, and should only be discussed with an experienced independent life insurance broker.
There are 2 main types of Permanent policies to choose from including:
• Whole Life Insurance
• Universal Life Insurance
1. Whole Life Insurance
Whole life is a very rigid form of permanent life insurance where you have few or no options in managing death benefits, premiums you pay, or the cash value accumulation portion as you are locked in for as long as you own the policy.
Some of the Whole Life choices include:
• Straight Whole Life
• Level Premium Whole Life
• Continuous Premium Whole Life
• Whole Life Joint
• Whole Life Survivor
Whole Life also comes as:
• Participating Whole Life – Provides some limited options for the investment component
• Non-Participating Whole Life – No options
2. Universal Life Insurance
Universal Life is very similar to Whole life but is more flexible regarding:
• Death benefits; and
• Management of the cash value accumulation component
The 4 types of Universal life include:
• Guaranteed Universal Life
• Indexed Universal Life
• Variable Universal Life (although we do not sale this)
Finding the best life insurance policy is a lot easier when you use an independent life insurance broker such as the ones here at Huntley Wealth. We will point you in the right direction in regard to life insurance comparisons for 2016.
Our independent agents have access to over 40 different life insurers so we can comparison shop the right life insurance product, at the most affordable rates. We can guide you through the entire buying process and will follow up down the road to help you if circumstances change.
Call us at 877 – 443 – 9467 today if you need to find the best life insurance. We can help!*Written by Chris Huntley. Huntley Wealth Insurance and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser.