Pitfalls to Avoid When Shopping for Life Insurance

When shopping for term life insurance, you may see offers for "quick quotes" or other online forms or calculators for getting an instant term life insurance quote. While these instant life insurance quote calculators can be useful for getting a ballpark estimate what you might pay, it may take a lot more than a simple software tool to get an accurate rate. Among other things, speaking with a licensed insurance agent that can analyze and optimize coverage is essential for maximum peace-of-mind. A licensed agent will develop in-depth profile information about you, your health history and your coverage needs. An agent can then advise you regarding medical exam advantages and can arrange for a free medical exam (a requirement for medically underwritten life insurance).

Companies often engage consumers with an instant life insurance quote or quick quote that is based on very little information about you. The fact is that the initial estimate is merely a preliminary step in the process. Ron Harris, president of Matrix Direct (www.matrixdirect.com), one of the nation's largest direct marketers of term life insurance, points out that every accurate term life insurance quote requires a discussion with a licensed agent and a medical exam. "People get a quick quote and think it's accurate, or very close. But it often isn't. They must still talk to a professionally licensed agent and take a brief medical exam to get an accurate term life insurance quote. It can be an unwelcome surprise to think the rate is going to be one thing, then find out later in the process that it's higher."

Another consequence of trusting "quick quotes" either from online calculator-type sources or from agents out to make a quick buck is the risk of buying the wrong type of insurance because of lack of understanding about the different types. If term life insurance is purchased there is the risk of purchasing the wrong term. You can often extend policies beyond their original term but the risk lies in paying too much in premiums for the optimal or needed coverage. Again this highlights the importance of allowing all aspects of your coverage needs to be analyzed by a licensed insurance professional that represents many highly rated companies. Various companies specialize in types or terms of insurance for specific profile classes or "rate classes." A profile of your situation can then be matched with companies that specialize in the types of insurance the agent recommends.

These rate classes are the industry standard that determines how much you will pay. Prior to insuring, life insurance companies assess the likelihood of someone dying. They consider things such as medical history, weight, genetics, tobacco usage — even recreational interests (e.g., a scrapbook hobbyist is a lower risk than a skydiver). They weigh these factors and arrive at your "rate class," which determines what you pay. Most insurance companies have four basic rate classes for non-smokers and two for smokers. For example, the very best rate class for non-smokers is "Preferred Plus" (sometimes called "Premier"); the next best rate class is "Preferred;" followed by "Standard Plus" (sometimes called "Select"); and finally "Standard." Depending upon your age and the amount of coverage and term length you are seeking, the cost differential moving from just one rate class down to the next can be significant. For example, a man 45 years old who is seeking $500,000 of coverage for a 20 year period, could pay one-third more if his rate class was identified as "Standard Plus" vs. "Preferred." Increases like these may represent hundreds of dollars a year. While a licensed insurance professional can take into account the many factors necessary to know you individually and to find your rate class, what we are calling "quick quote" or instant life insurance quote calculators are not able to gather this depth of information.

If you are an active or ex-service member in the United States armed forces, you may already have coverage for your loved ones. The U.S. government provides $100,000 to spouses and $10,000 to each dependent through the SGLI program. SGLI premiums are comparatively very inexpensive.

Also, many government workers have access to free or low-cost life insurance through state or federal government programs. Many staffers and legislators have policies that are paid for by the state. The existence of such programs will be revealed in employment guides or by inquiring management or human resources personnel.

Many employers also can provide low or no-cost life insurance policies for employees. This is especially true in the case of critical or "key" employees -- employees that are deemed likely to cause business failure in the event of their demise. Again, employment guides or management will be able to provide information about the existence and specifics of such policies or programs.