Either way, if you’re just looking into life insurance for the first time, you’re doubtless getting a lot of advice, and much of it might even be conflicting. If your life insurance agent is anything like most, he’ll probably tell you that you should buy lots of permanent life insurance.

After all, it’s permanent. Since we all know we’re going to die someday, that way we can make sure our money isn’t thrown away. It will pay out. Plus it builds cash value which you can take out loans against. Or, if you prefer, you can give up your insurance any time after the first two years and walk away with the cash value of the policy.

But here’s what he won’t tell you. That attractive interest rate the savings vehicle of your whole or universal life insurance policy dangles in front of you only applies to a very small portion of the premium that you pay. For the first two years, it doesn’t apply to any of it. Why? Because for the first two years, you’re paying more commission than anything else. Don’t believe me?

In most cases, insurance agents who sell permanent life insurance collect a commission of 90%-95% of your first year’s premium. While term life insurance also offers a substantial commission (averaging about 40% of the first year’s premium), the commissions are much higher for whole or universal life insurance policies.

When you add together the fact that an agent makes a higher percentage on permanent insurance and the fact that permanent insurance is more expensive, you get an equation where it is to the insurance agent’s advantage to sell you permanent insurance. So, naturally, most insurance agents will try to sell you on the benefits of such policies. After all, they’ll be collecting a higher percentage of more of your money.

Most financial experts recommend buying term if you need life insurance. With a little research, you’re sure to agree. But don’t tell your insurance agent we told you so.

Photo via robertpaulyoung

Of course, there are some term life insurance policies whose premiums go up every year as you get older. But most people don’t purchase these kinds of policies. And frankly, most people shouldn’t. For most people, a twenty or thirty year level term insurance policy makes more sense than anything else.

With level term insurance, you determine (with your agent’s help) how much coverage you need to cover the financial loss to your family if you should die during the term. The premium is set according to whether or not you use tobacco products, whether you have a dangerous career or hobbies, your health and, most importantly, your age.  In most cases, your age is the largest determining factor is the cost of your life insurance.

Statistically, most people become parents at an average age of 25 – which is smack dab in the middle of our invulnerable stage. While it’s true that most of us will make it through our 20s in good shape, with plenty of vigor left for that mid life crisis in the late 30s and early 40s, the fact is that some us won’t. People do die in their 20s, both by accidents, disease, and every other conceivable form of death, up to and including the infamous “cause unknown.” And while we are young, our children generally are, too. In a nutshell, our families stand the risk of losing our incomes when they will need it the most, for raising and providing for children.

The truth of the matter is that you need life insurance more when you are young than you will while you are old. While it’s true, most of us won’t die until we’re well into our 70s, by then there shouldn’t be anybody depending on us and our large bills (i.e., a mortgage) should be paid off, so we really won’t need life insurance, except maybe enough to help defray the cost of burying us. Unless of course, those adorable toddlers we’re raising now are still living at home in their mid 40s.

Photo via cdrummbks

Here are some of the activities that will bump up your premiums:

• Skydiving is an activity that’s likely to get you charged more. There’s an old Army ditty that says, “if my chute don’t open wide, I’ve got another one by my side. If that one should fail me, too, look out below, I’m coming through.” Nothing says good bye quite like splattering yourself over the countryside from a mile in the air.

• Your term life insurance could cost you more if you’re into SCUBA diving, too. Something about hanging out under water with critters that can eat you is our best guess as to why. Of course, if some poor sap is being chewed on by a hammerhead shark, he probably isn’t too worried about his insurance at the moment anyway.

• Believe it or not, holding a private pilot’s license can cost you more on your insurance. Ironically, it doesn’t even matter if you use it. The fact that you could means you get to pay a little more.

Of course, some insurance companies have more extensive lists of risky activities for which they’re inclined to add a nickel here and a dime there to your premiums. It all depends on what company you deal with, so shop around a little.

There is one risky behavior, though, that virtually all life insurance companies charge more for. If you smoke or use tobacco products, you will pay more for your term life insurance. Of course, smokers don’t usually die the kinds of dramatic deaths that SCUBA divers or skydivers have the potential for, but they do tend to die about ten years earlier than non-smokers, and often of things like lung cancer which can be rather gruesome in their own right.

We wouldn’t presume to tell you whether or not to smoke, but we will give you this tip. If you do smoke, and quit, make sure you let your insurance agent know. Your rates just may go down.

Photo via divemasterking2000

While there are dozens of variations on the main themes, life insurance comes in two basic flavors: permanent and temporary. Permanent insurance comes with names like Whole Life, Universal Life, and Variable Life. Term insurance also comes in a number of varieties, the main differences being how long the term is to last, how often it can be renewed, and whether or not the price will go up and when.

Conveniently, life insurance needs also come in two varieties: permanent and temporary. Permanent needs are expenses that your family is going to have when you die, whenever you die. Whether it’s tomorrow or when we’re 98 years old, our family will have to pay for some kind of final expenses, be it a funeral or a cremation. These expenses currently average over $7,000. Of course, if we live a long time, the prices for final expenses, just like everything else, will go up.

Temporary needs are just that. Temporary. We all want our kids to go to college, and it’s a good idea to have life insurance to pay for it in case something happens to us, but we don’t need that coverage anymore after junior has his Maters in Engineering. Mortgages and loans likewise present expenses we would want to cover, but these expenses eventually get paid off.

So, what should we do? If we buy term life insurance, we won’t have our final expenses covered, assuming we outlive the term. But, if we buy permanent life insurance, we will end up paying for a lot more insurance than we need, to say nothing about the fact that permanent coverage is much more expensive than term as is.

While there’s no one right answer for every situation, for many people the best thing is to have some of both. Work with a trusted insurance agent to determine what life insurance needs you have. Then, cover the permanent needs with permanent insurance and the temporary needs with term insurance. For most, at least those in their earning years, this will mean a small whole life policy and a much larger term insurance policy.

Photo via madnzany

Term life insurance, on the other hand, is a simpler proposition. If you die within the term (most of us won’t, thankfully), your loved ones get a check. If you live through the term, the insurance company keeps your money.

On the surface, it probably sounds like permanent life insurance is a better gig, but appearances can be deceiving. First of all, permanent insurance is extremely expensive compared to term insurance. While exact rates vary depending on a number of factors, the same amount of premium payments offers us more coverage if we opt for term life. A lot more coverage.

But what about the cash value?

Whole life policies, and the various spins on them, do offer a savings vehicle which generally allows an interest rate that is above average, and may even lock in a t guaranteed rate or return. It can look pretty damned appealing.

The flaw in the system comes in this: we are not paid interest on the entire premium we pay. Insurance take out the agent’s commission (which is often more than double the commission rates for term life insurance). They then take out the actual cost of the insurance. Then they take out processing fees. We are paid interest on what is left.

How much time do you have?

Anyone with a calculator and a modicum of business sense can figure out that it takes many years for the amount of cash value to approach the amount paid in premiums, much less that amount with interest. It doesn’t take a genius to figure out that it’s better to have a slightly smaller rate of return on all of your investment or savings dollars than to have a larger rate on a small portion of them.

So, if you want a small permanent policy to cover permanent needs like burial, fine. But don’t use it as an investment tool. In the vast majority of cases, the numbers just don’t add up. And for your most important life insurance needs, the ones you have while you’re still raising a family and paying off bills, buy term life insurance. In most cases, it’s the only feasible way to obtain enough coverage to replace the financial loss your family would suffer if you were to pass away before your time.

Photo via RodrigoFavera

• How much your loved ones will receive when you die
• How long the policies will be in force
• How much you’re paying
• If and when the policies eventually terminate
• Whether or not you are building any cash value in your policies.

The answers to those questions determine what kind of policy you’re looking at.

Basic types

There are many different kinds of life insurance, but basically all life policies fall into one of two categories: term life insurance and permanent life insurance.

Permanent life insurance is called by many names, and comes in a number of variations. You may hear terms like “whole life”, and “universal life”. While there are some differences, which an agent can explain more thoroughly, these kinds of insurance have two main features:

1. First, they are permanent. That means, you can keep the policy until you die, and it will not be cancelled as long as you continue to pay the premiums.
2. Secondly, they build cash value. This is a sort of savings vehicle. After the policy has some cash value built up, you can take a loan against it if you need it, or you can walk away from your policy and take your cash value, forfeiting the insurance.

The problem with permanent life insurance is that it is quite expensive. The insurance company knows they are going to have to pay out the benefit amount, the only question is when.

Term life insurance, by contrast, is set up to insure you for a set period of time. If you die within that time, your beneficiary receives the death benefit. If you don’t, the insurance company keeps the premiums.

The advantage to term life is that it is the only way most people can afford to insure their lives for anything close to the amount of money their families would be out if they were to die early. There’s never really a good time to die, but dying during our earning years is particularly burdensome to those who depend on us for income and support.

While you can hope that money would never replace us in their hearts, a large death benefit amount can go a long way towards keeping groceries on the table, making sure they don’t lose the house, the dream of a college education for the kids and more.

So which should you buy? That’s a much debated issue. While everyone should consider their own circumstances, the main thing to think about with life insurance is whether or not it will meet your family’s needs if you were to die before all the bills are paid off. There are positive things to be said about both kinds of coverage, but for most people with dependents, term insurance makes more sense.

Photo via foundphotoslj

Still, there are things you can do to make your term life insurance policy even more affordable. Keep these three keys in mind if you want to avoid paying more than you need to for your term life insurance:

1. Get the right amount of coverage.

Your insurance agent is going to try to sell you as much insurance as possible. The fact that you’ve already decided on term life insurance against a whole life policy means that you’re cutting into the agent’s commission. Go into the meeting with your agent knowing how much coverage you want.

How much should that be? It’s up to you. Many people want enough coverage to pay off their mortgage and to provide income replacement for several years. Do some research, pick your number, and then get a policy that has that amount of coverage.

1. Comparison shop.

If you’re smart, you’ll get quotes from several companies. You should then compare these companies with one another. Look at their rates. Look at their reputation for service, as well. Consider the financial strength of the insurance company, too, as that will impact whether or not the company is going to be reliable in the long run.

1. Be healthy.

The fact of the matter is that there are some situations where you’re going to pay more for your term life insurance. Smokers, for example, may pay as much as twice what nonsmokers do. If you currently smoke, get a policy to cover you but then work hard to quit smoking. After a couple of years, you will be eligible for lower premium rates, and can renegotiate your policy or start looking around for a replacement policy that’s much less expensive.

Photo via notfrancois

Unfortunately, it can also be one of the most expensive ways to buy life insurance. Depending on your situation and your family’s needs, the coverage may or may not be a good proposition for you.

Before you sign up for life insurance from your employer, you need to do a few things:

• Understand the policy that’s being offered. Usually, life insurance offered by an employer is a term life insurance policy. That kind of policy pays a death benefit if you die during the term of the policy. Most of the time, a life insurance policy that’s offered by an employer will actually be additional coverage. Many employers provide a life insurance policy equal to one or two times your annual salary, and let you purchase additional life insurance beyond that.
• Look at your existing coverage. If your company already covers you for one or two times your salary, you’re off to a good start. If you have an outside policy in addition to the one from your employer, you may have plenty of life insurance.
• Compare premiums. Depending on your age and your health, sometimes an employer life insurance plan will be able to give you coverage at a lower rate than an outside company. Get some quotes from other companies and see how the premiums compare.
• Consider portability. Usually, if you leave your job, you will leave your life insurance policy as well. That can become a problem. If your health deteriorates, for example, you’re going to have a hard time finding someone to cover you if you lose your job or if you change jobs.  If you intend to retire from your current position, you might be fine, but even if that’s the case you run the risk of the unexpected, and could find yourself without life insurance altogether.

Photo via Alex E. Proimos

Today’s one-income household is much different than what it was in the old days. More and more, we’re seeing dads staying at home and moms going to work. The stay at home parent often serves as more of a household manager, taking care of bills, getting everyone in the family where they need to go, and even home schooling in some cases.

Remember, too, that there’s a reason you’ve chosen to stay at home. Perhaps it is because you believe your children will benefit from having more time with one parent. Perhaps it is because you have a child with special needs. Maybe you have a larger family, and daycare is prohibitively expensive.

If something happens to the stay at home parent, life changes dramatically for everyone. The children no longer have that parent at home. To make matters worse, the parent that they still have needs to continue going to work every day in order to support the family.

In an ideal world, the stay-at-home parent will have just as much life insurance coverage as the working parent. That way, if something should happen, the working parent will have the option of becoming the stay at home parent. At the very least, it will give the working parent the resources that she needs in order to keep the family operating smoothly, whether that means hiring a nanny, working only part time, or any combination of approaches.

Even a little bit of life insurance coverage for the stay at home spouse can mean the difference between complete financial ruin after the loss of the loved one and a relatively easy time of it financially.

Photo via premus

You’re pretty sure that, if it had been you, there would have been a lot less in the way of comic relief and much more in the way of serious spending.

Regardless, it’s not very likely to happen that a long-lost millionaire uncle is going to leave you money. However, when a relative you know dies it is worth checking into their life insurance situation. Even if their estate was relatively small, there may be life insurance policies that you can collect.

Unfortunately, you may not know where to start looking. You may know that Grandpa had a life insurance policy, but you have no idea who the company is and you can’t find the paperwork.

You may be able to find out by going through your relative’s papers. Even if you can’t find a bill for his insurance premiums, you may be able to find contact information for his insurance company. You can then contact the insurance company for more information.

One thing you’ll need to do, once you find a policy, is figure out whether it was in effect. If the insured died prior to the term life insurance policy expiring, then the beneficiary can collect. On the other hand, if they weren’t current on their premium payments, you may not be able to receive a death benefit.

If your relative passed away a long time ago, there is a chance that the amount you receive from the insurance company will be more than the policy’s face value. You will actually receive the benefit along with accumulated interest from the date that your relative died.

Photo via Lord Jim