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Five Mistakes People Make When Buying Life Insurance

Mistake #1- Not shopping Around

Years ago, it was virtually impossible for a life insurance agent to be able to effectively “shop” more than a few life insurance companies for the best rate for each individual. Today, it’s very easy for an agent to compare quotes from hundreds of companies, assuming the agent has invested the money in the quoting programs that allow them to do this. If you are dealing with an agent who has this capability, you will be assured of getting a rate that is much lower than the rate you will receive from an agent that only has one or two companies.

Note: If you want the best rates, NEVER deal with a “captive” agent. This means that he or she is bound by contract to only deal with one company. That would be like buying shoes from a shoe store that only has one style and one size to fit all. You wouldn’t do that, right? Then why would you but from a life insurance agent that only has one company?

Mistake #2- Falling for the “Lowball”

There are many agents out there that simply quote the life insurance company’s absolute lowest rate to virtually everyone. Unless you are in perfect health, you won’t qualify for these rates (only about 15% of the population does). These agents are basically “low balling” you and hoping to get your commitment. They will break the news to you about your true rate later, after you've invested a lot of time to get the policy. It’s the old “bait and switch”.

An experienced and honest agent will ask you in-depth health questions and quote you a realistic rate upfront.

Mistake #4- Not Buying Enough

Most people are grossly underinsured when it comes to life insurance. The average person purchases about 3 to 4 times their annual income in life insurance, shoves the policy in a drawer, and feels good about it. You need to ask yourself whether or not you feel comfortable knowing that in 3 to 4 years, your family will be hurting for money.

If you purchased 10 times your income (which few people do), this would replace your income for about 13 years, when factoring in inflation. In order to replace your income indefinitely without ever having to touch the principal amount invested, you would need about 15 to 18 times your income. This is what the life insurance industry economists call your “Human Life Value”. If you died as a result of a plane crash, etc, the “Human Life Value” is what is universally accepted as the amount needed to replace that person’s economic value to the person’s family and dependants.

We should all have this much insurance, but very few do.  It's better to have some insurance versus no insurance at all, but it is best to have the adequate amount of insurance instead of just a little bit. 

Mistake #4- Not Buying Term Insurance with a Conversion Privilege

This is a feature that is not talked about enough, but it is extremely important if you find yourself in a position where you need it. A conversion privilege means that a life insurance company will allow you to convert your term life policy to whole life insurance, without a physical. For example, if you buy a 10 year term policy, and 9 years into your policy you develop cancer or another major health issue, you can convert your policy to a permanent policy without a medical exam. Then you will have peace of mind knowing that you'll have insurance coverage for the rest of your life (assuming that you pay your premiums). Without the conversion privilege, you could potentially be uninsurable (or be insured at extremely high rates) once your term policy ends.

Many policies have this feature, but not all. Most people never use the conversion privilege, but if you ever need it, you will be thankful that you have the option. Make sure you ask your agent about this.

Mistake #5- Failing the Life Insurance Physical

You might not think you can't “study” for a life insurance physical, but you can. There are quite a few things you can do to insure that you get the best results from the exam that the life insurance company will require. Most experienced agents I know don’t coach their clients on how to get the best results, and the big DOT.COM companies never do. If you flunk the physical, or simply have your triglycerides, blood pressure, blood sugar, slightly elevated, it can cost you thousands of dollars in extra premiums over the years. And don’t think you can just run and apply to another company. There is a clearinghouse for insurance companies called the MIB- Medical Information Bureau. Any decision made by one company is listed here for other insurance companies to see. If you fail at one, you've just raised red flags for any other company that you might apply for in the future.

Compare Rates Today

The most important point to remember when shopping for a policy is to compare rates from several companies. Premiums can vary by as much as 70% for the same amount and type of insurance so it definitely pays to compare. Get a free no obligation quote today and compare multiple quotes from the nation's highest rated carriers.