What should I look for in an agent?
Agents are there to help you. At the most basic level, any agent should be able to answer all of your questions about insurance, provide you with a thorough assessment of your insurance needs and offer you a choice of insurance products to meet those needs. Also, any insurance agency should provide you with prompt, quality service in the case of a claim.
Just as important is the level of professional confidence and personal comfort you feel with the agent. Many people stick with the same insurance agent for decades, even generations. It helps to find an agent you can get to know and trust.
An important, but sometimes overlooked factor to keep in mind is that there are two kinds of insurance agents: those who represent only one insurance company and those who represent more than one insurance company. Agents offering through their agencies only the policies of one insurance company often are referred to as "captive agents," or "direct writers" because the company they represent does not allow them to offer their customers competitive alternatives.
By contrast, agents offering through their agencies the policies of more than one insurance company are called "independent agents," because they can shop around for their customers for the best insurance values among a variety of competing companies. A nationwide survey showed that Americans prefer to work with independent insurance agents by a 2-to-1 margin over captive agents.
Term life policies cover you only for a "term", or a specific period of time -- usually for one, five, 10, 15, or 20 years or until a specified age, such as 65.
Most term life policies provide only death benefits in the form of a check to your beneficiary for the amount of the policy if you die. Because they usually have no savings feature, term life policies generally are less expensive initially and easier to understand than cash value life policies. Term life insurance generally offers the buyer a greater death benefit for their premium dollar. However, the price of a term life policy will normally increase as you grow older. At the same time, your insurance needs may decrease as children grow up and savings and investments increase in value.
Renewable and Convertible Policies
Because term life expires at the end of the term, you should look for a renewable policy with a guaranteed term that will cover the duration you will need life insurance. A renewable policy allows you to continue your insurance as long as you pay the premium, regardless of your health. However, renewal rates increase significantly if you cannot pass a physical exam.
Some term insurance policies are convertible. This means that as your insurance needs change, you can exchange your term life policy for a cash value policy without taking a medical exam or answering health questions. You may choose to convert your term life policy if your health declines and it becomes difficult to qualify for a new term policy at standard rates. You also may convert your term life policy if you decide to use insurance as a way of accumulating funds instead of providing only death benefits. Insurance companies usually allow conversion until age 65.
Common Policy Variations
Annually Renewable Term (ART) - You may renew most ART policies up to age 95. However, ART premiums are extremely high for middle- and older-age consumers. If you are paying high premiums, you may want to shop around for a better value, especially if you are in good health.
An ART provides a fixed premium and death benefit for one year. When the term ends, you may renew your policy, but the premium will probably increase. To avoid yearly increases, some people look for five-, 10-, or 20-year renewable term policies.Decreasing Term - This policy provides death benefits that decrease each year. Mortgage insurance and credit life insurance are examples of decreasing term policies. The initial death benefit may equal or approximate the amount of your loan, with the benefit decreasing as you pay off your loan. If you die, the insurance benefits pay off or reduce your loan balance.
Whole Life Insurance is a form of Permanent Life Insurance that provides lifetime protection for as long as the premiums are paid. In some cases, whole life policies are designed to mature at age 100, which is the age when premium payments would end and the cash value would equal the face amount of the policy. At maturity, the face amount of the policy would be paid to an insured person who is still living.
Whole life insurance may be used as a form of investment, as it accrues interest over time. With whole life insurance you can receive dividends from your insurer, which you can then use to offset the cost of your policy, to increase the amount of your coverage, or even to buy a supplemental term life policy.
Whole life policy premiums are divided into two parts: Death Benefit and Cash Value Account.
Death Benefit: Part of the premium in a whole life policy is used to cover the cost of the death benefit coverage over the insured person’s lifetime. The so-called "death benefit" refers to the amount of money paid or due to be paid when a person insured under a life insurance policy dies. This is paid directly to the beneficiaries of the insured.
Cash Value Account: The other part of a whole life policy is used to build a cash value account, which is paid to the beneficiary upon the death of the policyholder in addition to the death benefit. The interest accrued by the cash value account, usually at a fixed rate, is comparable to that of a savings account. This money can usually be borrowed against or withdrawn in times of need or emergency--one of the things that make a whole life policy attractive to prospective buyers. However, the money is not available right away; policyholders must wait for the cash value account to accumulate to a certain amount before they can borrow against or withdraw it. They must also not exceed the limits of the policy, or it will become forfeit and all coverage will be cancelled.
With universal life, the policyholder can arrange the benefits to meet his or her needs. The policyholder controls how much of the premium is paid toward the insurance and toward the savings, and can change the value of the policy as well. There may be a specific limit to how much the policy can be changed at one time, especially if the policyholder does not provide another health exam. Increases in the death benefit usually require updated proof of insurability. Universal life policies also allow for changing the amount and timing of premiums from time to time, as long as the premium covers the cost of monthly maintenance of the policy and maintains a basic benefit amount. If you fail to cover these minimum premiums, the death benefit of your policy can be greatly reduced.
Universal life policies usually have a minimum interest rate, but the rates can fluctuate similarly to a money market account. Therefore there are no guarantees as far as savings or cash value earnings. However, the growth of these accounts is at a substantially higher rate than average whole life insurance. These policies can sometimes allow any dividends paid by the insurer to be placed in the cash value account, as well.
Universal life insurance is the perfect policy for someone who has yet to purchase a home or start a family but expects to do so in the future because of its easy changeability and quick profit margin. However, because it involves more participation from the policyholder, consultation is recommended.Term Life vs Permanent Life/Whole Life Insurance
Experts have spent a lot of time debating over whether it is more advantageous to obtain Term Life or Permanent Life Insurance coverage. Each type of life insurance has its benefits and drawbacks.
Premiums for term insurance are very inexpensive compared to permanent insurance for healthy people up to about age 50. After age 50, premiums for term life begin to get progressively more expensive, although nowhere near as high as those for permanent life insurance.
Young families with financial obligations are in most cases better off with term insurance. Significantly lower premiums enable them to purchase substantial coverage to protect against loss of income.
Permanent Life Insurance is usually purchased by older, more affluent individuals with a large amount of monthly disposable income necessary to support the higher premium requirements for this type of coverage. They have a higher net worth and may need insurance for tax and other financial planning purposes.