Questions to ask yourself
Life insurance is a very personal decision, but you should consider the components with as much factual and professional evaluation as possible. Emphasizing just the personal aspect of life insurance may cost you more than necessary or result in selecting the wrong product for your current and future lifestyle.
Here are some questions to ask yourself before you evaluate coverage and companies:
At your age, what type of life insurance – whole life or term life insurance – might be the best choice?
Both types of life insurance can provide the income protection you want, but they work quite differently. In one case, you are paying for pure protection, as you do with auto or homeowners insurance.
Term life insurance offers the protection level you want without the "frills" of whole life. Often, if you are older, term life insurance may be the best choice. Whole life insurance, with its cash value buildup, may be better when you are younger. But the decision is always yours.
Based on your current age, would you like to increase your potential retirement funds by using life insurance?
Whole life insurance products, which offer protection, investment, and cash value appreciation, can be a component of your retirement savings program.
How is your health right now and how do you think it will be in the future?
Health and age are the most important components of life insurance cost. Other factors are lifestyle, occupation, and amount of protection desired.
Do you have a family history that indicates you might be subject to certain health issues in the future? Do you smoke cigarettes? Do you have an occupation that has a statistical history of generating health problems or dangerous situations?
Based on your compensation and cash flow, how long would you like to keep your premiums constant?
Are you rising through the corporate ladder quickly or more settled in an industry or position that might keep your compensation rather constant for the foreseeable future? Are you going to get an advanced degree in business or medicine that would mean a major increase in compensation in the next few years?
How much present and future income should you protect?
A young parent with a growing family should look at quite a few years of lost income should something tragic befall them. A baby boomer facing retirement and fixed income in a few years may have less income protection issues. Boomers, however, may have many assets that need protection.
These are some important questions to ask yourself before you start a serious search for new life insurance. There are no right or wrong answers, just honest ones.
Questions to ask agents
What are the pure protection costs?
If you've decided on getting whole life insurance, ask your agent to "separate" the protection cost versus the amount being credited to your cash value account.
Should you still be debating the whole life versus term life insurance merits, you should learn what pure protection costs in the whole insurance coverage you're considering.
What are the recent historic "earnings" and cash value "buildup" for whole life coverage you're examining?
Like all other investments, some companies offer more "dividends" that post to your account, which obviously increases your cash value faster than some competitor's programs. Few, if any, guarantees of earnings are made.
However, by examining earnings applied to similar programs by companies you're considering, you will have an idea what your cash value might become.
What is the financial condition of companies you're considering?
This question is both very important and often overlooked by many people. Life insurance, by definition, is a long-term product. Planning on paying thousands of dollars in premiums to a company that may not exist when you need them is a very poor plan.
Collect financial information on all major life insurance companies using data compiled by sources like A.M. Best, a well-respected company that studies these companies in depth. Also, ask your agent for recent financial data and to explain the reports of prospective companies.
Other questions that could be important, particularly if your health prospects are foggy, should be asked now. For example, assume you pass all the medical tests and questionnaires for your new life insurance coverage, but you're not as confident for the future.
Ask agents and companies about "guaranteed renewable" provisions in new coverage, which allow you to continue your policy regardless of your future medical issues.