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Life Insurance Is Key Component of a Family Financial Plan Continued << Previous Page
An insurance policy is only as good as the company that backs it. You should make sure that the company that issues your policy will be around to service it and eventually to pay the death claim. There are several ratings agencies that assess insurance companies on their ability to remain financially sound over the long term. A rating represents an independent assessment of the insurer's ability to pay its claims on time and meet all its other financial obligations; reviewing these ratings can help you find a financially strong company. It is a good idea to look at least two of the four leading ratings agencies: A.M. Best, Fitch, Moody's and Standard & Poor's. The I.I.I. also offers guidance on selecting the right life insurance company: How do I pick a life insurance company?
Look into group insurance
Consider participating in your employer-sponsored group life insurance program, even if you have to contribute to it financially. Policies available through the workplace often have the advantage of group rates and limited medical underwriting. Employers may subsidize their group insurance costs as well. It is worth exploring what is available to you through the workplace and comparing it to coverage available to you as an individual. In comparing group to individual life insurance, remember that if you have over $50,000 of group life insurance, the Internal Revenue Service (IRS) determines how much it costs to provide the amount over $50,000 and imputes taxable income for that cost. If you are in your fifties or older, or are buying larger amounts of life insurance coverage, it is worth taking these IRS rules into consideration.
Buy when you are healthy
Find out which rate class you will be grouped into and, if necessary, consider making some lifestyle changes—not smoking, maintaining a healthy weight and exercising regularly—to qualify for a more favorable rate class. Buy when you are younger and healthier, if possible. Older people and those not in the best of health pay steeply higher rates for life insurance, so buy as early as you can once you have dependents.
WHEN YOU’RE READY TO BUY
Don’t Shop Around on the Basis of Price Alone
While life insurance is a very competitive business, and you may find differences of hundreds of dollars in annual premiums among similar companies for the same face-value policy, it is important to consider the additional features that a policy may have as well as the insurer’s overall reputation. The guaranteed cash value component of a higher-premium life insurance policy, for instance, may justify the additional expenditure on the policyholder’s part. When comparing policies, Internet quotes and online research can be a good place to start. You can also ask an agent or broker to get you a premium estimate for several life insurance companies.
Look for premium discounts
Most companies offer rate discounts for specified insurance amounts. For example, you might actually pay a lower rate per dollar of coverage for $250,000 of life insurance than for $200,000, or for $500,000 of life insurance than for $450,000, because a discount kicks in at the higher insurance amount.
Beware of “fractional premiums”
Typically, you can pay your annual life insurance premium in a single payment, or in smaller amounts more frequently during the year. Although the latter method might seem easier, some companies add steep charges for paying premiums in installments.
The I.I.I.’s Life Insurance Basics covers many of these issues in more detail, and the I.I.I. has two videos on the subject of life insurance. One highlights the issues prospective policyholders need to consider before buying a policy, and the other offers guidance on tracking down a lost life insurance policy. The Life and Health Insurance Foundation for Education (LIFE) is an excellent resource on this topic, as well.