I don?t talk about it much on Frugal Rules, but I spent five years in the life insurance industry prior to becoming a stockbroker. My wife also spent nearly ten years in the industry. Due to that, we commonly get asked when is the best time to buy life insurance and our answer is always the same ? it?s going to be different for each individual.
We?re all going to die at some point, and need to do what we can to make sure family members are prepared in the event of our passing and life insurance is a major piece to that.
The best time to buy life insurance is a common debate and it?s clouded by the fact there is so much misinformation about it. You have sales representatives who sell policies to be things they?re not as well as the belief that you absolutely don?t need it if you don?t have a family.
With that in mind, I?m going to be running a series here on Wise Dollar that will not only go over when is the right time to buy life insurance but also things to look out for so you can keep more money in your pocket while also being wise in what you purchase.
Buy Life Insurance Sooner Rather than Later
The best time to buy life insurance, generally speaking, is sooner rather than later. Earth shattering I know, but very true. ?:-) The simple fact is that the earlier you buy your life insurance, the cheaper it?s going to be. We?d love to think that we?re better as we age, though the actuarial tables insurance companies use will tell you differently.
I know that those without families or who are younger will question why they need to purchase life insurance when they have no ?need? at the moment. I get that, I really do, and held it at one point, but it?s a shortsighted view in my opinion. It?s a simple fact that the younger you are when you buy life insurance, the cheaper it?s going to be for you.
Ultimately, it means that you will be saving money?over the long run. That?s also not to mention the fact that you?re likely going to be able to afford more life insurance coverage than you would if you wait years to get it. Take that with the fact that you never know what?s going to happen in life and it generally makes sense to buy life insurance sooner rather than later.
There is also a misconception that it?s not the right time to buy life insurance if you have 10-20 pounds to lose or are working on quitting smoking, or other things like that. That is an understandable belief, but you shouldn?t allow that to hold you back from purchasing coverage. Many don’t know that you can buy life insurance without the exam or you can simply get your rates re-evaluated once you lose that weight or stop smoking. Instead, buy insurance coverage now and use the hope of lowered premiums to motivate you to reach your goal.
Know Your Options
If determining when a good time to buy life insurance isn?t difficult enough, there are a myriad of options available, such as:
- Term Life insurance
- Whole Life insurance
- Universal Life insurance
- Group Life insurance
While variety is usually a good thing to have, the misinformation is big when it comes to the different types of insurance coverage available. With that in mind, below is a basic explanation of how each of the aforementioned life insurance products work:
Term Life: Term Life provides coverage for a specific period of time. The most common are 10, 20 and 30 year terms. These are generally the cheapest life insurance policies to buy and once the term is over your coverage expires.
Whole Life: Whole Life varies from Term in that it provides coverage for the entirety of your life, or until you surrender the coverage. As a result, Whole Life premiums are generally more expensive but they do allow you to build a small cash value in addition to the coverage. Whole Life insurance is commonly referred to as ?burial insurance? for older individuals who are looking for ways to cover the final expenses.
Universal Life: Universal Life is a step up from Whole Life and is generally viewed as permanent insurance as well. Universal Life allows you the possibility to build a larger cash value and is often sold as an investment product, although life insurance should truly not be considered an investment.
Group Life: Group Life is usually the cheapest and easiest to get as many employers offer Group Life coverage. Having Group Life is a great option, but only as a compliment or supplement to other coverage that more fully replaces your income. This is due to the fact that you?re generally not able to take it with you when you leave an employer. That said, at the very least, you should purchase this if it is available.
Now that we?ve covered the major types of life insurance, the great thing to know is that there are many avenues by which you can buy life insurance coverage today. You have the traditional insurance representatives you can buy from as well as online purchasing opportunities.
You can easily find life insurance rates and purchase policies through companies online. Personally speaking, I like to have a mix of different policies and amounts as it is cost advantageous for us. For example, we have $50,000 in coverage for my wife through USAA for $5 per month, which isn?t too bad in my opinion.
Life Insurance is not an Investment, But it?s Vital
By now, you should know when it?s a good time to buy life insurance and what to buy. You want to buy young and buy cheap. As I said earlier, there is a lot of misinformation when it comes to life insurance. One of the main areas that comes from is the belief that life insurance should be treated as an investment vehicle.
Listen, I understand why many insurance representatives sell it as such. It?s because they get nice fat commissions out of selling those types of products to you as a client! I saw it every day for five years and it?s a shame that it happens it much as it does. The situation is made worse when fear is used to sell such products to uninformed clients. It might be an effective sales strategy, but it?s not the best one in my opinion.
That being said, that is not at all to say that buying life insurance is not important. In fact, it?s an incredibly vital to proper retirement and estate planning. Think of life insurance coverage as a compliment to what you?re already doing in regards to saving for retirement. It may not be as important as saving and investing, but it still plays a vital role in planning for the future of your family. With that in mind, the answer to when is the best time to buy life insurance is?now! ?:-)
When do you believe is the best time to buy life insurance? When was the first time you bought life insurance coverage?
Photo courtesy of: David Amsler
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