How to Buy Life Insurance
If you’re just starting the process of shopping for life insurance, you may be feeling a little overwhelmed. Thinking about your priorities can help set you on the right track. The main factors to consider when shopping for life insurance include what kind of policy is best for you, how much coverage you need and why, what life insurance company to use, and how life insurance will further your overall financial strategy. These are big questions, but this guide will help you with each of them.
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John Gibbons, a partner in the insurance practice of the law firm Blank Rome in Washington, D.C., generally agrees but says this isn't a hard-and-fast rule. “I like people who have the ability to look at multiple companies, but I wouldn’t necessarily rule out dedicated agents," he says. "If you have a strong relationship with someone who works for a single company, I wouldn’t shy away from them."
As you compare quotes from competing companies, you might wonder why premiums vary among companies even for the same amount of coverage. This is because no two insurance companies’ policies are exactly the same, even for a given type (such as whole life insurance). Each company uses its own algorithms and writes the coverage in its own way. For example, if you’re comparing $1 million whole life policies from two different companies, one company might set your expected mortality at age 90, while the other might set it at age 121, which would affect the premiums quoted. Some policies also build in common benefits, while others charge fees for those benefits via optional riders.
Your premium might not seem to have much relation to the amount of coverage you receive, but it is carefully calculated by your insurance company. Gibbons explains that insurance companies calculate your premium based on statistics that show how likely they are to turn a profit on your policy before paying out your death benefit. Further complicating the matter is that an insurance company’s financial rating is based on liquid assets, i.e., how much money is available to pay out benefits.