Cheap Life Insurance - Information
How is life insurance sold?
You can buy life insurance either as an
“individual” or as part of a “group” plan.
Individual Policy
When you buy an individual policy, you
choose the company, the plan, and the benefits and features that are
right for you and your family. You might be able to buy the policy from
the same agent or company representative who sells you property and
liability insurance for your home, auto or business. And although you
won’t qualify for any discounts by buying your life insurance and other
insurance from the same representative, working with a single advisor
for all your insurance needs can make your financial life simpler.
Individual policies are typically sold through insurance agents or
brokers. If you buy a policy through an agent or broker, you will pay a
commission, also called a “load,” that is built into the premium rate.
The commission compensates the agent or broker for the time spent
advising you on how much and what type of life insurance to buy, for
facilitating the application process, and for any further service that’s
needed in future years to keep the policy up-to-date (such as changing
beneficiary designations, arranging policy loans or coordinating your
financial plans with your lawyer and accountant).
There are two other ways to buy individual life insurance. In
Connecticut, Massachusetts and New York, you can buy it from a savings
bank. Or you can buy a policy directly from an insurance company or from
a fee-only financial advisor—what’s known as a “no load” or “low load”
policy. Although there is no sales commission on these policies, the
company will still have charges built into the premium to cover its
marketing expenses, application processing expenses and subsequent
services. Finding an insurance company that will sell you a no-load
policy isn’t easy; typing in “no load life insurance” on Internet search
engines will in many cases lead you to an agent or broker.
Group Policy
You might have life insurance automatically from your employer; many
large companies do this. Your employer also might offer you the chance
to buy additional life insurance under a group policy. And you might be
eligible to buy life insurance under a group policy from a union or
trade association or other group you belong to (such as a college alumni
association or an automobile club).
Compared to buying an individual life insurance policy, there are
several advantages to buying life insurance under a group policy:
Group purchase can sometimes offer you a lower rate for a given death
benefit either because the employer or other group sponsor subsidizes
the premium or because the rates are averages weighted by people younger
than you.
There are virtually no health qualifications for getting the group
coverage.
Premium payment is usually by payroll deduction (for employer-based
group coverage) or linked with other payments (e.g., credit card bills),
lowering the chance of missing a payment.
Most employer group plans are term insurance, but if you leave that
employer your state may require that you be allowed to convert the
policy to a form of whole life insurance with the same insurance company
that provides the group life insurance. You would then pay premiums
directly to the company and keep the insurance in force. This can be an
advantage if you are older, or have experienced deteriorating health, as
it gives you the opportunity to qualify for whole life insurance without
having a medical exam.
Credit Life Insurance
Credit cards and lending institutions may
offer life insurance to pay off your outstanding loans in the event of
your death. This is generally made available in two ways
As part of the loan at no extra charge. In this case the cost of the
life insurance is borne by the lender and is included in its interest
rate or other finance charges. If you have this type of credit life
insurance, you don’t need separate life insurance to pay off that loan
if you die.
As an option at an extra charge. In this case, you should usually reject
the optional coverage, provided that you have some other life insurance
(group or individual) that can be designated to pay off the loan if you
die. If you’re under age 50 and you don’t have other insurance that
could pay off this loan, consider buying individual life insurance for
this purpose as the rates will probably be better. At 50 or over (or
younger with health issues), if you have no other life insurance for
this purpose, the optional credit life insurance is likely to be cheaper
than individual life insurance.
Roughly 1,000 life insurance companies sell life insurance in the U.S.,
but many are members of groups of companies and so aren’t really
competitors with each other. Having separate companies enables a group
to offer its products through separate distribution channels, to more
efficiently meet the regulatory requirements of particular states, or to
achieve other organizational goals. There are an estimated three hundred
company groups.
Moreover, not every group has a company licensed to operate in each
state. As a general rule, you should buy from a company licensed in your
state, because then can you rely on your state insurance department to
help if there’s a problem. And if the insurance company becomes
insolvent, your state’s life insurance guaranty fund will help only
policyholders of companies it has licensed. To find out which companies
are licensed in any state, contact that state’s state insurance
department.
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