Life Insurance: Getting Better Rates by Refinancing
The term life insurance can be a bit daunting, with long-term plans and annual premiums. And when it comes to the rates themselves, it can feel like you’re at the mercy of your provider. But by refinancing life insurance policies, you may be able to secure better rates and policies that are more in line with your needs. Here's how!
We'll take a look at what life insurance is before delving into why you might want to refinance or shop for a different policy. First, life insurance is a financial tool that can help you save for your future. It does this in two ways: by providing you with the cash value of the policy and protecting your family from any financial hardship should you pass away. This article will help you understand how insurance works and what refinancing can do for you.
Stated simply, life insurance is a contract between the insured and the insurer (a company that offers coverage) that guarantees repayment of the policies' cash value should the policyholder die or die due to certain events. Life insurance is a popular financial tool used by many people around the world, with more than 200 million Americans having purchased at least one policy by 2012 . The U.S. life insurance industry had $1.3 trillion in revenue in 2014, an increase of 5% from 2013 and up from its 2013 total of $1.2 trillion .
What is life insurance?
Life insurance is a contract between you, the insured , and a third-party life insurance company or an agent that offers the policy. The insurer pays benefits to your beneficiaries if you die or if you die due to certain causes, such as an accident, illness or other conditions. Life insurance is one of many financial tools that helps protect loved ones and help them financially in times of need. Other financial tools include wills, trusts, retirement plans and long-term care coverage.
How do you get life insurance?
When a company or agent sells you a policy, it goes into effect immediately. You typically pay for your coverage monthly or yearly by making premium payments . The amount of the premium you pay depends on the type of policy, your health and age. Life insurance premiums can vary widely based on many factors, which include:
Your age, gender and health . If you have pre-existing conditions , you may be charged higher premiums. Insurance companies use your risk profile to determine the likelihood of claims and the amount of time they expect to collect premium payments before paying out anything.
. If you have , you may be charged higher premiums. Insurance companies use your risk profile to determine the likelihood of claims and the amount of time they expect to collect premium payments before paying out anything. Your income and financial history. Life insurance is a form of financial protection, so the company will take into account your current and past income when determining your premiums. The company will also look at your other investments, such as stocks or bonds, as well as other accounts you might be holding with the company.
Life insurance is a form of financial protection, so the company will take into account your current and past income when determining your premiums. The company will also look at your other investments, such as stocks or bonds, as well as other accounts you might be holding with the company. Your health . Life insurance companies use your health history, including things like smoking and drinking habits, to ensure that they will be able to pay out to your beneficiaries .
. Life insurance companies use your health history, including things like smoking and drinking habits, to ensure that they will be able to pay out to your beneficiaries Your assets. Life insurance helps you protect what you have worked for over the course of a lifetime. The amount of life insurance you have is tied to the value of assets like your home, car or retirement account .
How much life insurance do I need?
Life insurance is about protecting what you've worked for. But the amount of coverage you need will depend on a number of factors. These should include:
Your age . As we age, our health declines. This increases our chances of developing illnesses and injuries that could lead to or contribute to our death or disability . People who are older may also choose to "age in place," continuing to live at home even as they age. This allows them to remain independent for longer and maintain financial control over their assets.
. As we age, our health declines. This increases our chances of developing illnesses and injuries that could lead to or contribute to our death or disability . People who are older may also choose to "age in place," continuing to live at home even as they age. This allows them to remain independent for longer and maintain financial control over their assets. Your income . Your ability to pay your premiums will gradually decrease as you get older . If you expect your income to decline due to retirement or other factors, you may want enough life insurance so that you will be able to continue making payments without struggling when your income drops.
. Your ability to pay your premiums will gradually decrease as you get older . If you expect your income to decline due to retirement or other factors, you may want enough life insurance so that you will be able to continue making payments without struggling when your income drops. Your family's needs . As your loved ones wait for the benefits from the policy, they may run additional costs by having to support themselves financially while looking after a terminally ill relative or dealing with expenses associated with funeral costs and final arrangements.
. As your loved ones wait for the benefits from the policy, they may run additional costs by having to support themselves financially while looking after a terminally ill relative or dealing with expenses associated with funeral costs and final arrangements. Your financial goals. You might consider more coverage if you have substantial student loan or mortgage debt, a young family for whom you are a primary caregiver or other expenses that may cause financial stress during your lifetime. However, make sure that your policy doesn't exceed the IRS's amount of debt-protected life insurance, which is $500,000.
Life insurance is one of many tools you can use to protect what you've worked hard for over the course of your lifetime. Working with your financial advisor to plan for your future can help keep you and your loved ones financially secure.
Arielle O'Shea is a staff writer at NerdWallet, a personal finance website. Email: aoshea@nerdwallet.com .
Conclusion
Life insurance is a tool to protect your family and financial well-being after you die. You want to have enough coverage so that your beneficiaries can receive the benefits without having to worry about paying out of pocket.
Determining what amount of life insurance you need will depend on a number of factors, including your age, health history, current income and assets. As well, you'll want to ensure that you're not going over the IRS's limit on debt-protected life insurance.
You should also take into account the associated costs and payouts from life insurance policies when determining how much coverage you need.