Are you shopping for life insurance? This might be the first time you ever hear an insurance agent say this, but don’t pick up the phone and call just yet. You can save yourself a lot of time by completing a short checklist beforehand.
At JRC Insurance Group, we consider it part of our job to educate the public, not just sell them on life insurance. As independent agents, we are removed from the numbers-driven cultures, quotas, and call centers that breed pushy salespeople.
We take the time to provide personalized service and shop 40+ carriers, so you find the right coverage at the right price. We welcome every call we receive, however, to make the process as easy as possible for you. We recommend writing down your answers to the following questions before summoning our service (which, by the way, is completely free to you, with no obligations whatsoever).
Quick Article Guide:
1. What Are You Looking to Protect?
2. Who Are You Looking to Protect?
3. How Much Coverage Do You Need?
4. Do You Need Term or Permanent Coverage?
5. What is Your Budget?
6. Do You Have Any Health Issues?
7. We’ll Take it From There
Life insurance can provide protection for just about any debt or long-term expense you might have. People typically purchase life insurance to cover some combination of the following:
For example, if you died, how would your spouse pay the mortgage? You wouldn’t want them to have to shoulder the financial burden, so you would purchase a life insurance policy with a face amount, or death benefit, equal to or greater than the estimated mortgage payments. More on this shortly. In the meantime, we will add that life insurance is also commonly used for:
Click on the links above to learn more about each of these use cases.
Financially, who would suffer the most if something were to happen to you? They will be your beneficiary or the person who will receive the payout from your life insurance policy after you die. Spouses are the most common beneficiaries we see, followed by children, or heirs for those who do not have a spouse.
You can also name a contingent beneficiary, who would receive the death benefit if the beneficiary dies as well.
There is no universal formula to determine how much life insurance coverage you should buy. Financial experts might say anywhere from 5 to 10 times your annual salary, but there are other debts that might come into play. If you’re calculating solely for income replacement, consider the following approaches:
To prevent people from over insuring themselves (aka making themselves worth more dead than alive), there are regulations on the amount of life insurance you can buy in relation to your salary. The cumulative amount of insurance you’re allowed to buy is generally based on a multiplier of your current age and gross income, aligning with approximately how many years you have until retirement:
- 20s and 30s: 30x your gross income
- 40s and 50s: 15-20x your gross income
- 60s and 70s: 5-10x your gross income
Calculate your net monthly expenses, multiplied by 12 (the number of months in a year). Then multiply that by the number of years you need the coverage for (perhaps the number of years you have to work before you retire).
For example, Let’s say that you’re 45 years old and your net monthly expenses are $3,000. By multiplying your monthly expenses by 12, we get your annual expenses of $36,000. Multiply this number by the amount of working years you have left—we’ll say that you plan to retire at age 65. That means you have 20 working years left. $36,000 x 20 years = $720,000. For income replacement, you need a life insurance policy with a $720,000 death benefit.
You can also simply calculate the sum of the specific expenses you are looking to insure. We often use the acronym, DIME:
- Debt (auto loans, credit cards, etc.)
- Income (multiply your annual income by the number of years your family would need financial support)
- Mortgage (current total balance)
- Education (children’s college expenses)
Add these four totals, and you will have a solid basis for your life insurance policy.
There are two main types of life insurance: term life and permanent life.
Term life insurance lasts for a set number of years. Terms typically run for 5, 10, 15, 20, 25, or 30 years. Term life is usually the most affordable type of life insurance, especially for those who are in good health.
Permanent life insurance lasts your full life span regardless of age or how long you’ve had the policy. Within permanent life insurance, there are two sub-groups: universal life insurance or whole life insurance. You can learn more about each type of permanent life insurance by clicking the links. For now, we can keep it simple by posing the question: do you need coverage for if you die or for when you die? Term life insurance is ideal if you have debts that you expect to wane as you age, while permanent life provides peace of mind in knowing you have coverage for the rest of your life.
Most term policies are convertible, meaning you have the option to convert to a permanent policy at the end of your term. The nice thing about this option is that you can select how much of your policy you want to convert. For example, if you have a $500,000 term policy, most life insurance companies will allow you to convert $100,000 to $500,000 of your policy into permanent coverage. For most people, the need for coverage diminishes as we get older. Having this flexibility will allow you to customize the policy to your current needs. Best of all, you won’t have to re-qualify for coverage, regardless of your health
Life insurance policies can range from $20 per month to hundreds of dollars per month, depending on your age, health standing, and the amount of coverage you need. For someone in their 30s or 40s and in good health, it can be relatively easy to secure a $1 million face amount for less than $30 per month. Permanent coverage, on the other hand, usually has a much higher cost because the insurance company is guaranteeing a payout. You don’t need to do any heavy number crunching before calling an agent—just knowing a ballpark range of what you can comfortably afford will be helpful. JRC offers a variety of resources and guides to help you get a better idea of your life insurance budget:
Aside from your age, your health will play the largest role in determining how much you can expect to pay for life insurance. Are you taking any medications? What is your blood pressure and cholesterol? Have you had any surgeries recently? When was your last checkup? These are all important questions to know the answers to before you start shopping for life insurance.
Family history can also affect your rates. If you have had a serious health problem, such as cancer or a stroke, don’t assume you’re uninsurable. At JRC, we specialize in helping “high risk” clients find affordable coverage. If your issue is considered to be reasonably under control, there are likely options out there through some highly rated life insurance companies that offer more lenient underwriting requirements. Some even cater to applicants with certain conditions.
If you have any serious health issues, you should be prepared to take a medical exam for life insurance to get the best rates. Although avoiding an exam might seem advantageous, insurance companies will review your medical records before approving your policy. If they see any health issues, they’ll want to know the level of risk they are taking before accepting an applicant. Without a medical exam, the provider is unable to quantify the medical risk they are taking by insuring an individual—essentially adding another layer of risk on top of risk. Therefore, they must err on the side of caution and charge higher premiums.
Stressed about the medical exam? Don’t worry—JRC can help you find a policy that doesn’t require an exam, but this convenience comes at a slightly higher cost.
Once you’ve gathered the above information, it’s time to take the next step and get assistance from an agent. You might be inclined to call your home or auto insurance agent and inquire about a “bundle” with life insurance, but we highly recommend against doing so for quite a few reasons.
Instead, go with an independent agent who actually specializes in life insurance and can shop multiple carriers. Part of the value we bring to clients is in assisting them through the entire process. We’re here to make buying life insurance as easy as possible for you. Again, you do not pay any fee for our consultancy, and you will not be pressured in any way. Many people don’t realize that even applying for a policy does not rope you into buying it.
With JRC, you can explore the options until you find the policy that’s right for you. Only after you are 100% happy with your policy, do you begin paying the agreed upon monthly premium. To get started, call us at 855-247-9555, or click the button below to get a free life insurance quote online.
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