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TOP 10 THINGS TO KNOW ABOUT LIFE INSURANCE

1. Shop around
2. Never buy more coverage than you need
3. The healthier you are, the better the rates
4. Buy sooner rather than later
5. Realize the importance of periodically reviewing your coverage
6. You don't necessarily have to pay a commission
7. You may be paying more for monthly premium payments
8. Don't rely solely on the life insurance offered by your employer
9. Tell the whole truth and nothing but the truth
10. Buying more is sometimes cheaper

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HOW TO BUY LIFE INSURANCE

Buying life insurance is an easy way to protect your family after you're gone. If you know what to look for, you can get great coverage at a price you can afford.

Why buy life insurance?
Topping the list of reasons to buy life insurance is the financial protection life insurance offers. If you're single and just starting out, you may not need life insurance. But as you take on more responsibilities and your family grows, your need for life insurance increases. The proceeds from a life insurance policy can replace the income lost to your family upon your death. You might also want to buy life insurance to pay off debts and expenses, leave money to charity, and cover final and estate expenses.

Choose term or cash value
There are two basic types of life insurance: term life insurance, which provides life insurance coverage for a specified period of time (the term), and cash value (permanent) life insurance, which combines a death benefit with a cash value component. Cash value insurance offers lifetime protection, while term insurance may be the most affordable option if you're buying life insurance mainly for the financial protection it offers, and your need for life insurance is temporary (until your children leave the nest, for instance). Some term policies (called "convertible") will permit you to exchange the term life insurance policy for a permanent one at some point.

Decide how much coverage you'll need
The amount of life insurance protection you should buy depends on how much income your survivors will need, how much you own and owe, and the amount of other life insurance available to you. If you're married, both you and your spouse should consider buying life insurance. One of the easiest ways to estimate how much life insurance protection you should buy is to use a life insurance needs calculator.

Pick a number between 1 and 30
Term life insurance is usually offered for periods ranging from 1 to 30 years. Consider choosing a term that matches your need for life insurance protection. For instance, if your main reason for buying life insurance is to protect your 7-year-old twins until they're out of college, you'll want to buy a policy with a term of at least 15 years.

How much will it cost?
How much you pay for life insurance will depend on a number of risk factors, including your age, your health, whether you use tobacco, your family health history, and the type and amount of life insurance you're buying. Keep in mind that the premium you're quoted initially will increase later. For instance, when you buy term life insurance, rates are guaranteed only until the end of the term (annually for annual renewable term or at the end of a specified number of years for level term). While most life insurance policies can be renewed at the end of the term, you'll pay a higher premium for coverage.

Shop around
When comparing quotes for life insurance, make sure that the insurance coverage you're comparing is similar. And remember, any policy that you buy is only as good as the company that issues it. Find out what rating the company has received from major ratings services, such as A. M. Best or Standard & Poor's. These companies evaluate an insurer's financial condition and claims-paying ability. The company giving you a quote should provide you with this information. You can also contact your state's department of insurance to find out more about an insurer's record.

Submit an application
Once you're ready to purchase a life insurance policy, you'll fill out a life insurance application that contains questions about your current and past health history and lifestyle. You'll generally be required to take a medical exam, arranged and paid for by the insurance company. The answers you give on your application, along with the results from the medical exam and your past health history, will help the insurance company determine whether to offer you a policy, and if so, at what price.

Learn the lingo
Maybe a life insurance contract isn't as exciting as a best-selling novel, but read it anyway. Policy provisions, the amount of benefits, the premium, and other charges you'll pay will be listed along with other important information such as the beneficiaries you've named and the premium guarantee period. Make sure you understand everything in the policy. Under the laws of your state, you may have a "free look" period (typically at least 10 days) during which time you can cancel the policy without penalty.

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LIFE INSURANCE FOR CHILDREN

Often parents and grandparents are pitched "special opportunities" by insurance agents to add children to their policies — opportunities that the agent claims come up only every few years — so there's pressure to make a decision right away. Before you buy, ask yourself what benefit comes of buying life insurance on your child. Because the purpose of life insurance is income replacement after a death, and children generally do not provide income, it may not be the right purchase for you.

However, one of the best reasons to insure children is to cover final expenses after a death, such as funeral arrangements, which can range from $5,000 to $20,000. The average family may not have the funds for those expenses, and life insurance can help.

Buy with your head, not your heart

If you buy a policy on a child, most policies have an option for the child to buy additional insurance when he or she comes of age — a sales pitch suggesting that children will have trouble buying insurance when they are right out of college, for example, and on their own for the first time. But the reality is that most young adults can easily obtain insurance coverage for reasonable rates.

If you are worried about funeral expenses, you can buy term life insurance policies with a small face value to cover them. Of course, if you have the means, you can instead save enough money for such emergencies. That way, the money is available for other needs, such as education or buying a new home, and not just if an unlikely disaster strikes.

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CAN YOU HIDE SMOKING FROM LIFE INSURANCE COMPANIES?

Life insurance companies want their policyholders to be in good health. So much so that some companies have three different premium classifications: standard, preferred, or preferred plus. You're rewarded with lower premiums if you're in excellent health and haven't smoked in five years because that reduces your chances of dying sooner. Being just "normally healthy" requires that you haven't used nicotine in the past three years and still gets you lower premiums. A standard rate requires that you have not used nicotine within the past year.

Then there are rates for smokers.

Who is considered a smoker?

In the life insurance world, you're considered a smoker if you answer "yes" to the smoking question on your insurance application. If you're asked if you've used tobacco products, including cigarettes, cigars, and chewing tobacco, within a specified time frame - and you have - your answer should be yes.

If you enjoy a good cigar from time to time or smoke just two cigarettes per year, you are a smoker by insurance standards, even though the nicotine traces won't show up in your required urine test. How should the occasional smoker answer that question? You should probably let your conscience be your guide.

Research shows that smokers pay nearly three times the premium of nonsmokers, so it's easy to see what motivates some people to lie on their policy applications.

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SELLING YOUR LIFE INSURANCE POLICY

A viatical company thinking about buying your life insurance policy will demand complete access to your medical records, especially if you're not healthy. The profit on this transaction for the investor rides on the estimate of how long you will live after selling your life insurance policy. You can be sure that people you don't even know will be very interested in your medical prognoses and deterioration. A viatical company will track your progress by means of phone calls, postcards, or some other pre-established communication. The process is not always confidential, so anyone, including your creditors, may be privy to your transaction.

If you are approached about selling your life insurance, follow these guidelines:

• Call your state insurance department to find out what, if any, licensing or regulations are in place for viatical companies. Some states require viatical companies and/or their brokers to be licensed.
• Consult your attorney, accountant, or financial planner. Find out the tax ramifications of viaticals; some states allow you to receive your proceeds tax-free. Check on the impact on probate and estate settlements. The Health Insurance Portability and Accountability Act says that viatical settlements, in which the recipient is terminally ill, are not subject to federal income taxes. However, life settlements that involve people either mildly ill or completely healthy are taxed as capital gains.
• Contact several viatical companies to make sure the offer is competitive. A company may pay 60 percent of the face value to a person with a life expectancy of two years or less, or 80 percent to someone whose life expectancy is less than six months. The Viatical Association of America encourages potential "viators" to get three offers on a viatical settlement before selling.
• Request that the company immediately set up an escrow account for you when you accept the settlement, so you'll be assured the funds will be there to cover the offer. Any reputable viatical firm would do this anyway. If they balk, you're dealing with a disreputable company.
• Talk with your current life insurance beneficiary, who is likely to be a family member or a close friend. Your decision will affect their lives as well and could make a big difference to them if they're saddled with your medical bills when you're gone.
• Keep in mind that receiving a viatical settlement will probably affect any public assistance you may be receiving that is based on financial need. Also, settlement proceeds are fair game to your creditors.
• Check into alternatives. There may also be other means for you to get fast cash. Find out if your life insurance policy includes an accelerated death benefit. Sometimes, this option is built into the policy and you're not charged a fee unless you use it. Many policyholders might take comfort in dealing with their own insurance companies rather than a viatical company.

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TIPS FOR FIRST TIME INSURANCE BUYERS

Decide how much insurance you need
You can't stop bad things from happening. But you can protect yourself financially by purchasing insurance. How much insurance you need depends on a lot of factors including how much you owe and own, how much your assets are worth, whether you have dependents, and how much out-of-pocket cost you could afford to bear. You can estimate your coverage needs using calculators or worksheets available on-line, but it's a good idea to sit down with an insurance agent or broker who can thoroughly evaluate your needs.

Comparison shop
No matter what type of insurance you're buying, the process is essentially the same. Once you've decided what type of insurance and how much coverage you need, you can begin contacting insurance companies online, directly by phone, or through an insurance agent or broker to obtain quotes. Get quotes from several different insurers because premium cost can vary widely.

But compare the coverage offered, too. A policy might cost less because it offers fewer, or different, features and benefits. And make sure the company you've settled on is reputable, with good customer service and claims-paying ability. All insurance companies are rated by major rating agencies (e.g. Standard & Poor's, Moody's, A.M. Best) on their ability to pay claims. You can access these ratings online, through public libraries, or through insurance company literature.

Understand what you're buying
An insurance policy is a legal contract that may be loaded with technical terms that are hard to understand. But read it anyway before you sign on the dotted line to find out about the coverage you're buying. For instance, the policy will tell you:

• Who or what is covered
• What coverage exclusions and limitations apply
• When coverage begins and ends
• How much coverage is provided
• How much you'll pay for coverage (the premium)
• How you report a loss or file a claim

It's always a good idea to ask an insurance professional to explain any terms, conditions, or benefits that you don't understand.

Evaluate your insurance needs periodically
As your life changes, your insurance needs change, too. So every once in a while (annually, some experts suggest), review your insurance to see if you need more (or less) coverage or an additional type of coverage. Here are some times in your life when you'll definitely want to re-evaluate your insurance needs:

• You're getting married or divorced
• You're starting a family
• You're renting an apartment
• You're buying a house or a car, or making a major purchase
• Your child is going off to college
• You're starting a new job or becoming self-employed
• You're buying or selling a business
• Your income increases or decreases substantially
• You're taking care of an aging parent
• You're retiring

Make your life insurance policies work for you by taking the time to periodically review your needs and coverages.

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TOP 10 WAYS TO SAVE ON LIFE INSURANCE

Just as there are different life insurance plans to meet your needs, there are different ways to save money on life insurance.

The most important is to shop around. There are hundreds of insurance companies, offering a wide variety of plans and prices. You could save big bucks, just by doing some comparison shopping.

Here are 10 more ways you can save money on your next life insurance purchase:

1. Consider term insurance

   Some financial planners advocate life insurance policies with cash value components because they force you to save money. Others recommend you buy term insurance for the cheaper premium, and then invest the money left over in mutual funds or other investments.

2. Seek out no-commission policies

   "No-load" or, more appropriately, "low-load" life insurance policies have fewer expenses built into them, such as agent commissions and fees for marketing, than more traditional life insurance policies. This can mean lower premiums. For variable life insurance, these lower expenses mean a higher percentage of your premium goes to work for you right away, allowing you to build your cash value faster.

   No-load policies can be purchased through financial advisors, who charge "flat fees" rather than collect commissions from insurance companies. Several companies also sell "no-load" or "low-load" policies directly to customers.

3. Don't buy a guaranteed issue policy if you are healthy

   "Guaranteed issue" term life insurance policies, also called "simplified issue" or "quick issue" policies, require no medical exam and are sold to anyone who comes along. For this reason, guaranteed issue policies are riskier for the insurer than policies that require medical exams, and are thus more expensive than regular term insurance policies. While these policies can be a great way for people who have medical problems to obtain life insurance, if you're healthy, you'll get better rates by taking the tests.

   The high premiums, combined with a low face amount for the death benefit, can make guaranteed issue life insurance a less desirable option. For some of these policies, you could end up paying more in premiums after only a few years than your beneficiaries will ever receive from the insurance company.

4. Shop online first While not all online life insurance quoting services will give you the best quote available for term life insurance, they can still be a useful source of information about prices. Just remember, the more personal information you give, the more accurate your online quote will be, but "the lowest quote" should still only be used as a baseline for shopping around.

5. Improve your health Having health problems can make it hard for you to buy life insurance. High blood pressure, diabetes, and heart disease are among the conditions that can make life insurance companies reluctant to sell you a policy.

6. Don't buy more, or less, than you need

   Many experts say the best way to determine the amount of life insurance you need is a needs analysis. It's a basic formula: short-term needs + long-term needs - resources = how much life insurance you need. Michael Snowdon of the College of Financial Planning in Denver says this method is "probably the most accurate approach in what is an inaccurate and imprecise science."

   Experts advise you do an analysis at least once every three years, or whenever you have a major life change. For example, if you have a new baby, you have to recalculate college education needs and child-care costs. If you own a home, a mortgage is likely your biggest financial burden. Because your mortgage balance decreases with each payment, it's important to include those revised figures in your calculations.

7. If you need more life insurance, get a rider as opposed to a new policy Just because your needs change doesn't mean you should run out and buy a new life insurance policy. In many cases a rider - an amendment to an insurance policy - can let you expand your coverage without sacrificing your built-up cash value. At the same time, be sure to shop around. If you're still in good health you might be able to get a better deal by buying a second policy to supplement your original one.

8. Buy as soon as the need exists

   An advantage to buying life insurance earlier in life is your premiums will be lower. As you age, life insurance gets more expensive. Many term policies give you the option to renew your coverage at the end of the term without undergoing another medical exam. You also can lock in low premiums by asking for a "level premium" policy, which means for a specific time period, say 20 years, your premium rate stays the same. After that term expires, your rates will increase.

9. Check your credit report before you apply Just as you should check your credit rating before applying for a loan, you should have a look at your credit report before purchasing a life insurance policy.

10. Fractional premiums Once you've found the best insurance policy for your specific needs, find out if you can save money by the way you're billed. Some insurers charge you less if you pay annually, and more if you pay monthly.

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