The Optimism of Quote Engines

Many online brokers are motivated to show you the lowest price. It’s just the way they compete. What could be wrong with that? Many things. First of all, life insurance premiums are driven by your health and lifestyle (and to a lesser degree, your family health history). Online life insurance quote engines, by default, often assume the best possible risk class for you.

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In other words, it’s advantageous for the online brokers to assume that you’re in perfect health (unless you tell them otherwise). That way, they can quote you the lowest premium. They’re hoping to appeal to your thrifty side. However, your actual premium might be substantially higher after you complete a more in-depth health questionnaire.

Online Quotes Might Leave You Paying Too Much

Even if you answer some basic health questions online, it doesn’t guarantee that the quoted premium is accurate or reflects the correct risk class for you given your health. There’s only so much an automated tool can do, after all. In some case, especially with “guaranteed issue” policies, the premium may be higher than what you would pay if you talked to an agent.

“Guaranteed issue” is a way for insurance companies to minimize the paperwork involved with issuing life insurance policies. The downside is that the insurer has to increase the premium for all policies issued this way since it’s not asking you for a detailed health and lifestyle history. The insurer takes on more risk for not knowing much about your health – you pay for it in higher premiums.

Part of the problem with using an online broker is that the quote engines aren’t able to talk to the underwriting department of various life insurance companies or do a pre-qualification for you before submitting an application. It’s just a computer program spitting out insurance quotes for you. You may or may not receive a phone call depending on how the online system is set up. In many cases, even when someone calls, it’s just to verify information you filled in and go over the coverage you’re buying.

Online systems also don’t have an intuitive sense for which companies are better able to insure which risks. For example, some life insurance companies consider any smoking at all a risk deserving of the “smoker” risk classification. As a smoker, you will pay higher premiums than a non-smoker assuming all other things are equal. Other life insurance companies allow you to smoke periodically throughout the year (i.e. celebratory cigars) without being classified as a “smoker.”

An agent can help you navigate the finer points of the underwriting process, ensuring that you’re classed properly and you don’t overpay for insurance coverage.

Differences In Policy Types

Often times, it’s assumed that term life insurance is the best way to go. This isn’t always true. There are times when universal life and even whole life insurance makes a lot of sense. Only a life insurance agent can properly assess which policy would be suitable for you given your financial situation and long-term goals.

The Benefits of an Agent

Automation in the life insurance industry is saving insurers a lot of money, but it’s not doing much to educate you about which types of coverage are right for you. Without an agent, you’re missing the one-to-one connection, and personal attention, that used to be common in the industry. It’s that personal connection that will result in you getting the coverage you need at a premium you can afford now, and in the future.

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One way to save money on these policies is to “bundle” the policies within one company. Some Insurance companies offer discounts ranging anywhere from five percent to as much as 30 percent savings over the individual policy premiums if the company writes more than one policy for an insured.

Having more than one policy with a company has other advantages for the insured as well. When policies are bundled the policies can be written so they are all effective on the same date. A common effective date for all policies enables the insured to receive one bill for all the policies. The combined policy billing can be done using various payment plans ranging from monthly, quarterly, semi-annual or annual one time billing. The combined billing help eliminate separate installment payment charges.

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Homeowners that have their homeowner insurance premiums excrowed with their mortgage payments, the insurance companies will continue to bill the lender for the homeowner’s portion and send a separate bill to the policyholder for the vehicle or other policies. The benefit is that the insurance companies will still apply the premium savings to all the policies for that insured.

Another advantage to bundling policies with one company is that in the event of a claim the company is less likely to raise premiums or possibly non renew the policy if the insured has more than just that one policy with the company.

Typically the policies that are bundled are homeowners, automobile, personal liability umbrella policies and watercraft policies. Some companies will also consider life insurance or health insurance policies for premium discounts if that company also writes homeowners and automobile insurance for the insured.

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Before online quoting was available, a person would have to contact each company and request an application be sent or answer a litany of questions by phone. If multiple quotes were wanted the caller would have to contact each company separately and go through the question and answer session each time. The experience could be so time-consuming and stressful the individual would simply stay with their present policy even if there was a cheaper or better product available.With today’s available online quoting systems once a person enters their information the system will search for companies and products that most closely match the particular individual’s needs. The result is much time and effort saved for the shopper. If the shopper is interested in a particular quote, there is information available as to whom to contact for additional information or to start the application process.

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For online browsing, term life insurance quotes are the most common searches. However, there are many other life insurance products available that may better serve the buyer. Choosing the cheapest quote can lead to coverage that won’t meet the buyer’s needs and result in higher cost.

Searching for online quotes is a great starting point in shopping for the right policy and coverage. Because each individual’s or family’s needs can be so different it makes sense to seek advice and recommendations from a life insurance expert. An expert can review the financial situation of the family or individual and advise which type of policy or coverage will most benefit the buyer based on coverage, limits, tax implications and cost.

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Step 1: Calculate Your Final Expenses

For those of you planning for a regular funeral and burial, costs generally run from $10,000-$20,000, so settle in the middle for $15,000. Average costs for a cremation with a ceremony and scattering of ashes, you’re looking at anywhere from between $2,500 and $9,000.

Step 2: Calculate Your Total Debt, Including Your Mortgage

Debts such as mortgages, car payments, existing student loans or other accumulated debt will be inherited with your estate. Therefore, it makes sense to tally all of these up and incorporate them into the lump sum provided for in a term life insurance pay-off. These debts can be overwhelming for loved ones, and should be provided for in event of a tragedy.

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Step 3: Calculate Educational Expenses

This can be hard, especially when children are several years away from college. However, you can safely average a 5% annual increase in college costs and use this as a starting point for calculations. Take some time to research today’s costs for priority colleges and use this to calculate what to cover. If you have no children, you can skip this step unless your spouse desires to continue their education.

Step 4: Figure Out What it Costs to Replace Your Income

Once you’ve taken all of these costs and expenses into account, there is a simple formula to how much more you’ll need. Simply take your current income and multiply it by 50 percent. Then, take this number and divide it by .05. For example, if you currently earn $75,000, you would need $750,000.

Add all four totals together and then modify to accommodate special circumstances, such as long-term dependent children, etc. What’s left is an adequate level of coverage you need to get your life insurance quotes for. Should your situation change in the future, you can always increase or decrease coverage accordingly!

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Miscalculating the Costs of Workers Compensation

While there are some variables in the equation, a fairly standard process is used to determine what you will pay for workers compensation insurance. The first element taken under consideration is each company’s individual estimated payroll. This can prove rather problematic for companies just starting out or going through substantial changes in operations. Unfortunately, underestimating payroll will eventually result in penalties, which must be paid within 60 days to avoid a Stop Work Order. Understand that your payroll will be audited, regularly, by either the insurance provider or your state’s workers’ compensation fund oversight committees.

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Never forget that this figure is the backbone of premiums that are set for your policy. Accuracy is incredibly important. If this seems like a potential problem for your enterprise, talk to your insurance provider about some of the pay-as-you-go options out there. These solutions are usually run either through a payroll service or through the insurance carriers themselves. This will always be accurate, right up to your latest pay period.

Wild Variations in Premium Prices

One frustrating reality of workers compensation is that there can be wild variation in price even if you know exactly what your payroll is and will be. This is because even though your job class code rate is set by the state, each insurance carrier has their own personal preferences as to which businesses they feel comfortable working with. The good news is that by doing your homework and finding out which workers compensation insurance provider specializes in your industry and sector, you can obtain premiums at lower prices.

The more time and effort you invest in this stage, the more money you’ll be able to save over the course of your coverage.

You’ve Been Deemed High Risk

Companies use certain modification factors to determine how to charge you for past mistakes and probable risk. Premium prices are obviously lower for those with safer backgrounds, fewer claims and a better health and safety record. For this reason, you have to take Risk Assessment seriously. It’s important, and it saves or costs you money, depending on how you determine and handle risk.

If you’ve been risky in the past, there’s no time like the present to start working on a clean slate.

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Some Life insurance policies are starting to come with a hybrid product attached for long term care. Some of these policies may begin to pay out when the policyholder requires assistance with two activities of daily living. This may include eating, dressing, or bathing.

Some of the hybrid policies can either pay you a set amount for every month or they will reimburse you for long-term care expenses. There may be a waiting period before these benefits will kick in.

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Some people use universal life insurance policies for long-term care anyways. Once they have matured and they receive a cash benefit, some people place the money in an account for future needs. With the rider policy, some policies will pay for care expenses and still have money left for their families.

One benefit of this option is that it can help in your estate planning. If it includes an indemnity benefit, which is payment to you rather than an expense reimbursement, you can place that policy in an irrevocable trust. You will still have access to the benefits for long-term care, but your heirs will get any amount left over and it will not be counted as part of your estate. For this to work, the benefits must be paid to the trust rather than the person who is insured.

One of the main benefits for this type of policy is that it can be less expensive than a stand-alone long-term care policy. Other considerations are that you have access to your money and you may qualify for this policy when you have been turned down for other kinds.

However, you must also be aware of one disadvantage. You will be locking your policies interest rate at whatever the current market is at. If you purchase one today, that will be very low for the future. In a few years, as interest rates rise again, you will see more interest in these plans.

It can be difficult to know when a traditional life insurance policy and a separate long-term policy is the better choice over a combination. If you are not sure of which will benefit you the most, you should discuss your options and goals with your life insurance agent. They can look at your particular case and show you the facts and figures to help you make the right decision. However, it is important to know that these types of policies do exist to give you more choices.

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The Divorce Settlement

It’s not uncommon for divorce decrees to require one or both partners to modify existing life insurance policies or purchase new coverage altogether. Typically, the purpose of mandating such coverage is to protect the financial liability created by other stipulations of the divorce, most notably child support and alimony. If the spouse providing this type of assistance dies, life insurance proceeds can be used to replace the lost income and ensure that remaining financial obligations are still met.

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The Policy Itself

While most divorce settlements do not usually specify the exact type of life insurance policy required to fulfill the obligation, it’s not uncommon for the court order to define both the benefit amount and the length of time that coverage must remain in force. Many settlements demand that coverage remains in force for at least as long as child support or alimony payments are paid, and that the death benefit is equal to or greater than the aggregate sum of those payments. Term insurance products are often the easiest and least expensive types of policies used to protect child support or alimony obligations, but permanent products may be used as well.

The Arrangements

The complexity of the divorce settlement with respect to life insurance varies greatly, often depending on how important coverage is to the couple. Typically, the ex-spouse is named as the primary beneficiary and the children, if any, are named as contingent beneficiaries. In some cases, policies are owned and paid for by the ex-spouse as well, which alleviates potential concerns over unauthorized beneficiary changes or non-payment of premiums.

Seeking Professional Assistance

If you’re divorced and in need of a life insurance policy to protect your child support or alimony obligations, consider enlisting the services of a professional insurance agent. A properly licensed and experienced representative will be able to guide you through the process of understanding the different policy types available and finding the best product to meet your needs.

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Group Life Insurance

Your employees are important. If one of them dies, it could seriously impact your bottom line. More than that, employees want (and need) to feel appreciated. Group life insurance may be just what you need. A group policy provides coverage for all of your employees while potentially giving you a tax deduction on at least part of the premium payments you or your employees make.

Like other forms of term insurance, your employees receive a guaranteed death benefit and premium payments are guaranteed to remain level for a set number of years. Most term policies provide coverage for either 10, 20, or 30 years, though the exact term of the policy depends entirely on the issuing insurer.

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Whole Life Insurance

While group life insurance provides benefits for all employees, there may be times when you want to be more discriminating in regards to who you offer coverage to. With group life, you generally have to provide coverage options for all employees. With individual coverage, you can pick and choose whom you insure.

Whole life policy is one popular choice when you want to provide a benefit to your executives (or to yourself). The policy premiums are paid by the corporation. Sometimes, the policy is owned jointly by the company and the employee, while other times the policy is owned by the employee and a special contract dictates what the employee can do with it.

This arrangement is referred to as an “executive bonus plan” or “162 bonus plan” – referring to the IRS code section permitting this type of arrangement. As a business owner, you receive a tax deduction on all premiums paid on the policy, while the employee must claim all premiums as income. However, you may opt to pay the taxes for the employee – an arrangement referred to as a “162 double bonus.”

When these plans are established, it is usually done as a supplemental retirement benefit. Whole life insurance provides a guaranteed death benefit, guaranteed cash value accumulation, and may offer generous policy loan provisions for the employee during retirement.

In layman’s terms, it means that you may be able to accumulate a substantial cash value inside of the whole life policy and use this money to supplement your other retirement income. Because you access money via policy loans, there is no income tax due on distributions as long as the policy remains in-force until your death.

Policy loans do not need to be repaid until death and, when you die, any outstanding loan amounts are deducted from the death benefit. The rest is paid to your beneficiary.

Another use for whole life insurance is providing coverage for key employees. This is called “key person life insurance.” The policy taken out on the life of your most valued employees. When they die, the policy pays a death benefit to the corporation so that you can find and hire a replacement.

During the life of the covered employee, the company may use the cash value in the policy for any reason.

Universal Life Insurance

Universal life insurance is another type of cash value policy that is sometimes used as a source of supplemental retirement income or for key person insurance coverage. This policy offers more flexibility in regards to how premiums are paid (i.e. they can be raised or lowered at any time) and how the death benefit is structured (i.e. it can be increased or decreased after the policy is issued – increasing the death benefit may require prior approval from the insurer).

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Term Life Insurance

Term life is the most basic life insurance coverage you can buy. Still, there are several different ways to purchase this insurance – each with its own advantages and disadvantages.

Annual Renewable Term (ART): This type of policy provides one year of guaranteed death benefit coverage. Each year, the policy must be renewed and your policy premiums increase. Some policies will “auto-renew” while others will not.

The advantage of an ART policy is that your premiums may be lower in the early years of the policy when compared to other types of life insurance. However, policy premiums are guaranteed to increase every year, and you may find that this policy becomes very expensive the longer you hold it.

Level Term: Level term takes an ART policy and levels out the premium payments so you can be sure of your total insurance costs over the life of the policy. Like ART policies, you also receive a guaranteed level death benefit.

The insurer is able to do this because it collects more than what’s required for just one year’s worth of coverage. It then invests the excess premium to help pay for future insurance costs. Insurers call this “level premium funding.” These policies are typically sold as 10, 20, and 30 year level term policies.

The advantage of these policies is that the premiums never change during the contract period. The disadvantage is that premiums may be higher than what you would pay in the early years of an ART policy and, at the end of the term, premiums may be substantially higher if you want to renew coverage.

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Whole Life Insurance

Whole life extends guaranteed death benefit coverage out to your age 100 instead of providing coverage for a set number of years. The advantage of this is that you don’t ever have to worry about renewing coverage, and premiums are usually level for the life of the policy.

It also comes with a “cash value” that you can use during your lifetime via life insurance policy loans. Repayment terms are flexible and loans do not need to be repaid until your death. Any borrowing activity reduces the dead benefit by an equal amount until the loan is repaid, however. Some insurers also provide preferred loan rates on policy loans, making the cash value an ideal source of emergency funds.

The disadvantage of whole life is that premiums may be substantially higher than term life insurance. Also, if you cancel the policy (or it lapses due to non-payment of premiums), you may end up paying income tax on any gains in the cash value (the IRS generally regards a “gain” as any amount in excess of the total premiums paid into the policy).

Universal Life Insurance

Universal life insurance consists of a one-year annual renewable term life policy and a cash value account. Each month, you pay premiums and the insurance company deducts money from the cash value account to pay for the death benfit. If the cash value ever reaches $0, your policy lapses and you lose your insurance.

The major advantage of this policy type is its flexibility. For example, you can alter the death benefit amount and premium payments any time after the contract is issued. Unlike whole life and term life, however, the death benefit may not be guaranteed and premium payments may not remain level for your lifetime.

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