Pricing Life Insurance

If you don’t know what something should cost, it’s easy to overpay. That’s especially true with life insurance. If you have loved ones who depend on your income, having the appropriate amount of life insurance is an essential part of your financial plan. In today's Faith and Finance Rob tells you how to avoid paying too much for it. You won’t find the expression life insurance in God’s Word. But the concept of needing to financially support your family is certainly clear. 1 Timothy 5:8 reads, But if anyone does not provide for his relatives, and especially for members of his household, he has denied the faith and is worse than an unbeliever. For the vast majority of us, life insurance is a must. Overpaying for it is not. Let’s start then with a question, How much should a 20-year policy providing $250,000 in coverage for a 30-year old cost per year?" A recent survey found that most respondents - especially millennials - think the cost would be around $1,000 a year. But the actual price tag is only about $160 a year. That means a lot of folks are setting themselves up to overpay. Here’s how to make sure you’re not one of them. First: avoid choosing whole life over term insurance. Don’t get caught up in the idea that your policy should have a cash value during your lifetime, instead of what it will do for your family if you should die. Whole, permanent or universal life insurance policies build a cash value that you can tap into for certain things while you’re still alive, but that’s very expensive money. You’ll be far ahead if you invest the difference between a whole life and a term policy in your retirement account. Instead of getting snared by a policy’s cash value, think instead about how much insurance you actually need to protect your loved ones, which is usually 10 to 15 times your annual salary. Then look for the least expensive term policy that provides that amount if you die during the policy’s term. You also want to pay attention to costly add-ons, which the industry calls riders. While these can help you customize your policy to fit a specific need you might have, they can also run up the cost. You especially want to avoid something called a return-of-premium rider. Check that box on your application, and the insurance provider will give you back all of the premiums you paid when the policy expires. If that sounds like a deal too good to be true, that’s because it is. That one rider alone could double your premiums and keep you from getting the returns you’ll realize if you invest the difference instead. So you want to stay away from anything that promises to repay your premiums. Another rider to watch out for is for accidental death. It raises the benefit if death results from an accident. But the restrictions as to what type of accident - and under what circumstances it applies to - severely limit its usefulness. Plus, if you take out enough coverage to begin with, you really don’t need an accidental death rider. Now, another way you can overpay for life insurance is when the provider doesn’t require you to have a medical exam. These are called guaranteed issue policies. Most companies, for most policies, will require you get a checkup and have bloodwork done. Of course, sometimes a policy that doesn’t require a medical exam is just what the doctor ordered. For example, if you have a pre-existing condition that makes it impossible to get a standard policy. But keep in mind that you’ll almost certainly have higher premiums and less coverage with a guaranteed issue policy. You also want to avoid something called an ART policy, an acronym for Annual Renewable Term. At first glance, these look very attractive because the premiums start out low. You’re guaranteed coverage for the life of the term. But each year you have to renew the policy, and each year your premiums increase. It won’t happen right away, but at some point you’ll be paying more than you would for a standard policy. Go with a simple term policy that has level premiums throughout its entire term. All of the ways I’ve covered so far to get the best price on life insurance are easy to see. You can find them right in the policy descriptions. But the last way - and probably the biggest - isn’t so obvious. It’s to act while you’re still young. Make sure you buy a policy while you're still young, and get it for as long as you can. On this program, Rob also answers listener questions: How can you dig yourself out of credit card debt that you incurred furnishing a new home and you are hoping to retire in three years at age 62 or six years at age 65? (Rob referred the caller to Christian Credit Counselors https://www.christiancreditcounselors.org/). Can you split your 10% tithe between your local church and mission work, or do you need to devote the first 10% to your church? If you are planning to sell your home for $600,000 and will downsize to a $250,000 home, what should you do with the surplus funds if you are age 61 and disabled and your wife is still working with a 401k worth $120,000? Will you owe taxes on a home you're selling for $600,000? Should a Christian be playing the Powerball lottery, and if you won, what should you do with the proceeds? Remember, you can call in to ask your questions most days at (800) 525-7000 or visit our website at FaithFi.com where you can join the FaithFi Community, and download the free FaithFi app. To support this ministry financially, visit: https://www.oneplace.com/donate/1085/29