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LIFE & DISABILITY INSURANCE -
Factors To Consider When Buying Life & Disability Coverage (cont.)
e. The age of the insured when the policy is purchased. The cost of life insurance increases as the age of the insured increases at policy initiation. The older you are on the effective date of the policy the more you will pay. This is a consideration when initially purchasing coverage, as well as when adding additional coverage is being considered. It is important to note that insurance companies often round your age up or down to your closest birthday, depending on when you apply for coverage (or perhaps the effective date of the policy). Make sure you apply well in advance of your “half birthday” date to save money over the entire life of your policy.
f. The health status of the insured when life insurance is purchased. If your health is very poor, life insurance may not be available at any reasonable cost. Otherwise, coverage may be available, but vary considerably in price, dependent on your health history. Smoking, being overweight and high blood pressure and cholesterol is frowned upon by life insurers, and will cause your rates to be much higher. Losing that weight, quitting smoking and getting blood pressure and cholesterol under control before you apply for life insurance will help to lower your cost considerably, as will adopting other aspects of a healthy lifestyle. Unfortunately, the health history of your parents, and perhaps siblings, will also influence your rates. There really is nothing you can do about this. But, do not be tempted to give inaccurate answers to any health questions asked by the insurer in order to try to get a lower premium. If the insurance is issued and a claim is made, the insurer will research your application to see if it is accurate. If misleading or inaccurate answers are discovered, your claim may be rejected, depending on the nature of the misinformation, and certain time limits..
g. Your occupation and activities also influence rates. If you have a dangerous occupation, such as firefighter, flight instructor, etc. your rates will also be higher. While lowering rates by changing your occupation is most likely not feasible, changing some of your activities is possible. Any high risk activities, like scuba diving, flying small planes, etc. will raise your premiums. The decision is yours.
h. Price breaks for different coverage amounts. Most life insurance companies offer lower rates per dollar of coverage as the amount of coverage purchased increases. In other words, the per dollar cost for $250,000 of coverage may be considerably higher than the per dollar cost of $500,000 of coverage. Make sure you check and take advantage of these types of price breaks.
i. Are employer group life insurance plans a good deal? While many employer group plans are a good deal because of the pricing efficiencies available from selling to a large group (and perhaps employer contributions), there is one major caveat. Older employees, and/or less healthy employees, may get a much better deal than younger and/or healthier employees. While rates for the group policy often have some differences for these factors, just as often they do not compensate as much as happens with an individual policy. So, if you are older or less healthy, group plans may be a great deal. If you are young or very healthy they may be a poor deal. Also, remember, that most of the time employer plans terminate when you are no longer an employee (although you may have the option of continuing coverage under new terms). If your health status changes, acquiring new insurance when your employment changes could be difficult and costly. Even if you do get employer coverage, consider having a reasonable amount of individual coverage.
j. Should I buy life insurance for my children? Since children do not have any income to protect against loss, life insurance really does not serve any real purpose. Sometimes people buy a minimal policy to cover funeral costs should a child die. This only makes sense if you will not have any money at all to handle the expense of this unlikely occurrence. People will also sometimes buy whole life insurance for their child as a way of building up savings. There are generally better ways to save money for future use by your child. And, finally, people often buy a life insurance policy for the child so they will have it when they get older, to make sure they have life insurance in case they are not insurable for some reason when they become adults. This really does not make much sense either, since the amount is likely to be small compared to an adult’s insurance needs, and most any young adult is insurable. So, unless there are exceptional circumstances, life insurance for children is generally not a good purchase.
2. Factors to consider when purchasing disability insurance.
a. The amount of coverage required. Given the price of disability insurance, decide how much of your salary you want to have covered if you become disabled. Net worth, debt and obligations, and other sources of income should be considered.
b. Length of term of coverage. Most disability policies run to the age of 65 when you will be eligible for Social Security, with coverage not available after that age. This is due to the fact that disability coverage is designed to replace lost wages from work.
c. When disability payments start. The length of time you need to be disabled before
payments commence is an important decision to make when purchasing disability coverage.
The longer the period before payments start, the less expensive the coverage. Consider
how long you can go without payments if you are disabled before there are financial
problems, versus the lower premiums available for a longer wait. Also, you may find
that short-
d. Whether or not Social Security disability payments will be deducted. Some policies will decrease the benefit payments made to you for any amounts received from Social Security disability programs.
e. How disability is defined is very important in determining the cost of coverage, as well as whether you receive any payments at all. Some policies require “full
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