Many years ago, when an individual applied for life insurance, the choice was somewhat easier than it is today. The life insurance policies in the past were fairly straightforward in that they paid out a basic death benefit claim upon the passing away of the insured.
Today, however, there are many different types of life insurance policies to choose from. While this vast array of choice has helped people to customize coverage to their unique and changing needs, it can also make narrowing down the exact policy type that is needed somewhat more difficult – at least until more education about how the policies work has been obtained.
Types of Policies Available
Overall, there are still two primary categories to life insurance that are available in the market place today. These include term and permanent:
Term Life Policies
With term life insurance, the policy consists of pure death benefit coverage in return for the payment of a premium. These particular policies do not contain any type of cash value or investment component. This is why term life is considered to be the most basic form of life insurance that there is.
It is also typically the most affordable – especially for those who are young and in good health. In fact, for individuals who wish to obtain a large amount of death benefit for a low premium cost, term life insurance can be a very good option.
As the name suggests, term life is sold for specific time periods, or “terms.” These are usually 10 years, 15 years, 20 years, or 30 years – although there are some term life insurance plans that are sold for as short as 1 or 5 years, and for as long as 40.
When a term policy expires – provided that the insured has held the policy throughout its entire length – and if the insured still wants life insurance coverage, he or she will need to re-qualify for another policy at their then-current age and health condition. Because they will be older – and they may also possibly have an adverse health condition – the new policy’s premium will likely be higher. (If the individual has been diagnosed with various health conditions, they may be deemed as uninsurable and may not be able to obtain future coverage).
Because term life insurance is considered to be “temporary” coverage, it is oftentimes thought to be a good way to cover temporary needs. As an example, this type of insurance may be a good way to cover the cost of a child’s future college education if a parent or grandparent were to pass away before the child turns age 18. Likewise, term life insurance can also be a good way to ensure that a 15 or a 30-year home mortgage will be paid off if a breadwinner passes away while there is still a balance to be paid off.
There are several different types of term life insurance policies that are available in the market place today. These include:
- Renewable Term Life Insurance – This type of term life insurance is able to be renewed by the insured after each time period – or “term” – has elapsed. This is allowed without the need to complete a new application for coverage or to pass a new medical examination.
- Convertible Term Life Insurance – With convertible term life insurance, the insured is able to convert from a term policy over to a permanent life insurance policy in the future. Provided that the conditions of the policy have been met and the premium payments have continued to be made, there will be no medical exam required in order to do so.
- Decreasing Term Life Insurance – With a decreasing term life insurance policy, the amount of the death benefit will decrease over time, until it gets to zero. At that time, the policy ends.
- Increasing Term Life Insurance – Converse to a decreasing term plan, with an increasing term life insurance policy, the death benefit will increase over time. However, the amount of the premium on this type of policy will typically remain the same throughout the life of the policy.
Because there are so many different types of term life insurance on the market today, applicants can pick and choose which will work best, based on their specific coverage needs and goals, essentially allowing them to “customize” their life insurance coverage.
Whole Life Policies
Whole life insurance is a type of permanent coverage. This type of life insurance will include both a death benefit and a cash value component. The cash value in a whole life insurance policy is allowed to grow on a tax-deferred basis. This means that there are no taxes that are due on the gain until the time that the money is withdrawn. This can essentially allow the cash to grow and compound on an exponential basis.
Unlike term life insurance, whole life policies do not have any type of set “term” of coverage, but rather they last indefinitely. Those who purchase whole life insurance will typically plan to keep their coverage for the “whole” of their lives.
These plans are usually intended to cover longer-term needs, as well, and they are oftentimes used in estate planning. Whole life is also often purchased on younger individuals and then kept for many years. This way, the person has life insurance coverage, along with a savings vehicle that grows tax-deferred over time.
How Life Insurance Quotes are Determined
When determining the price of a life insurance policy, there are several key criteria that go into coming up with the final quote. These can include the following:
- Type of Policy – One of the biggest factors in coming up with the price of a life insurance policy is what type of coverage you are purchasing. For example, will the coverage be term or permanent? In most cases, especially if an applicant is young and in good health, a term life insurance policy quote will be lower – at least initially. However, over time, as an applicant gets into the older ages, whole life insurance can become more competitive.
- Face Amount – The face amount refers to the amount of death benefit coverage that you are purchasing. This, too, will be a primary factor in the amount that you will be quoted for life insurance. As with most other types of goods or services, the higher the amount of coverage you are purchasing, the higher the quote will be.
- Riders – There are many different riders that may oftentimes be included on a life insurance policy to help in customizing it more towards the insured’s needs and goals. These “add on’s” can add to the overall price of the policy.
- Age of the Applicant – The applicant’s age is another key criteria in how much the life insurance quote will be. A big part of the cost of life insurance is based on a person’s life expectancy. Therefore, your age at the time you apply will certainly factor into the price of your coverage.
- Applicant’s Health Condition – Another primary factor that will affect the quote on a term and whole life insurance policy is the applicant’s health condition. Life insurance underwriters consider many different factors when pricing coverage – as well as deciding whether or not an applicant will even qualify for coverage at all. Some of the main components regarding a person’s overall health and body that are considered include his or her age, height and weight, overall health history, and family health history. Also considered is whether the person smokes and / or drinks alcohol (and if so, how often). In addition, other criteria will also be examined such as whether the applicant participates in any type of dangerous or “risky” hobbies such as sky diving or scuba diving. All of these criteria will be considered in order to determine the person’s overall risk to the insurance company.
- Insurance Company – The insurance company itself will also have a bearing on the amount that is quoted for term or whole life insurance coverage – even with all other factors being equal. Often, when comparing life insurance rates, individuals will find that policies have very similar – or even the same – benefits, yet will have drastically different premium quotes. For this reason, it is always a good idea to compare at least three or more quotes prior to making your final decision on a term or a whole life insurance policy. When reviewing an insurance company, it is always important to take a look at the financial strength of the insurer. This is because you will want the company to be there in the future when it is time for the claim to be paid out.
There are several ratings agencies in the industry such as A.M. Best, Standard & Poor’s, Fitch, TheStreet.com, and Moody’s that will assign ratings to insurance companies. These ratings are based on factors such as financial strength of the company, claims payout, and reputation in the industry. In most cases, these ratings are letter grades similar to those on a report card. It is important to stick with insurance companies that have high grades in the “A” range.
Term Life Insurance Quotes
Term life insurance quotes are typically lower than those for whole life insurance – especially for applicants who are young and in good health. These policies can provide a great way to purchase a high amount of death benefit coverage for a very low price.
In some cases, term life insurance may include a conversion rider that will allow the policy to convert over into a permanent life insurance policy after a certain period of time. In order to you get a much better understanding of the process and how to get the lowest premiums on term life insurance we put together this more specific guide for term life insurance quotes.
Whole Life Insurance Quotes
In many cases, whole life insurance quotes will be higher than term life quotes for a comparable amount of death benefit coverage on an individual. However, this is typically because with whole life insurance, the policy holder is not just purchasing death benefit coverage, but also the cash value component within the policy.
In addition, unlike term life insurance, a whole life insurance policy will not expire after a certain number of years. Rather, provided that the premium continues being paid, the whole life insurance policy will continue indefinitely. You can get more information that is focused solely on whole life insurance quotes comparison and how to know if you are getting the best policy with my write up on whole life insurance quotes.
What to Look For
When you’re ready to start comparing life insurance quotes, it is best to do so with a company that has access to more than just one life insurance company. This way, you can obtain unbiased information about many different policies and prices, and from there, you can determine which one may be right for you.
If you’re ready to get the process started, we can help. I have partnered with a great independent agent who works with all of the top life insurers in the industry today, and they can get you the information that you need quickly, easily, and conveniently. All of this is doen from the comfort of your home computer and without having to meet in person with a life insurance agent. If you are ready to get started, all you need to do is just simply use the form on this page.
If you find that you have any additional questions about life insurance quotes, or even just about life insurance in general, the professionals at Root Financial will be happy to answer those questions for you. They are experts in all areas of life insurance, and can walk you through the information you need so that you can be confident you’re making the right life insurance decision for you and those you love.