Insurance World

Knowing what kind of life insurance to get can be scary and threatening to the average person. Understanding the basic kinds of insurance products available out there can reduce some of that anxiety. How can you tell whether you should go with term life insurance or whole life insurance?

Term life insurance generally has the lower monthly premiums of the two. You can get higher coverage for a lower monthly payment. This kind of insurance is valid only for a certain period or term, hence the name. You purchase term life insurance to cover you until the kids grow up or until retirement or for another specified time range. If you don’t make any claims against the policy, you won’t receive any benefits from this type of insurance during the life of the policy. Other types of insurance are like that, examples include home insurance and auto insurance.

Whole life insurance on the other hand is viewed as a type of investment. A portion of the money you pay each month is invested into an interest bearing account or investment vehicle thereby increasing in value over the life of the individual who purchases this type of insurance. If you were to cancel a whole life insurance policy, the insurance company would return to you the value of the investment that has accrued since you began the policy minus any fees. Given enough time, the interest on this kind of policy can even grow large enough to cover the monthly premium that is due thereby potentially giving you insurance without a monthly cost.

How can you tell which type of life insurance is right for you? Know some of the basic advantages of each before deciding. Term life insurance generally results in lower monthly premiums with higher overall coverage. With the money you save on this type of life insurance versus whole life insurance, most people can still invest in other things like mutual funds, real estate or the stock market and get as good or better rate of return than the investment in a whole life policy. Many people will buy whole life insurance for specific tax or estate planning purposes.

While knowing these differences helps, I would suggest you find yourself an insurance agent you feel comfortable with and discuss which insurance plan is right for you. There is no substitute for a good adviser when navigating potentially complicated and difficult waters like life insurance.

If you’re lucky, you’ll get a life insurance quotation that you are happy with, progress to application, and get yourself insured within 48 hours at the original price quoted. Unfortunately this isn’t the case for 66% of applicants - who face delays and loaded premiums.

So why is this happening? Well, life insurance companies provide quotes based on the ‘perfect person’ – which basically means you must be 45 or under and in excellent health, have no hereditary illness in the family, work in an office and want no more than Ј250,000 cover. If you fall outside these strict boundaries, you can expect delays, and expense.

When you request an initial quote, you only have to provide a few details, namely your age, sex and whether you smoke. The insurer calculates how long you are likely to live, and uses that prediction to provide a quotation. This is what is known as their “Standard Terms”.

If you like the quote and want to apply, you’ll have to give them a lot more information. You can either fill the form out yourself or give the details over the phone, a service that many online insurance companies offer. It speeds up the process, and ensures that you don’t miss any important details out. Failure to include a detail that later on turns out to be important could invalidate your claim. They will then send the completed form for you to check and sign, so you need to be 100% sure that you have not omitted any details.

The insurers then use the information on the application details to make a more detailed analysis of your health and lifestyle, to try and predict any future concerns. If you have health problems of your own, you will instantly face loaded premiums, but they also look at more insidious issues such as your weight, alcohol and nicotine intake. Also if your father died of a stroke, or your mother from breast cancer, this will have an impact on their assessment of you.

Your lifestyle will also have a part to play. If you work in an industry where accidents happen, such as construction or farming, or if you have a dangerous hobby like paragliding or mountain climbing, your premiums will feel the heat. They will also ask if you regularly visit countries that have historically represented health risks for visitors, like Africa and parts of Asia. And even though the law doesn’t allow discrimination against same sex relations, the insurance companies will invariably ask you to have a full medical examination before agreeing to insure you.

Insurance companies have admitted that their list of questions has grown somewhat in recent years, and continues to do so. They say it’s to reduce the number of claims they reject, but whilst that may be partly true, the proportion of applicants facing loaded premiums has increased at a noticeable rate. A few years ago, it was more like 40% - but many of today’s insurers are loading premiums on 66% of applicants.

So just how much more will you have to pay? It’s impossible to say because it’s based on individual circumstances, but here’s an example to help illustrate. A 40 year old woman suffering from post-natal depression and receiving treatment for it was recently faced with a 50% increase on an initial quotation of Ј7.60, as was a woman whose mother had breast cancer. Overweight people also face higher premiums ranging from 50% to 100%, and in extreme cases - refusal.

So what can you do to avoid being charged these higher premiums? There is nothing you can do per se, other than avoid the insurance companies that give the cheapest initial quote. They are the ones that are most likely to have very strict medical criteria, because that’s their way of keeping their quoted prices at rock-bottom levels. Try a more expensive provider like Friends Provident and you may find that they are more lenient – in any case, it’s worth a try!

If you pay over the odds, you will be doing yourself a great disservice. Think about it, an extra Ј10 a month becomes an extra Ј3,000 on a 25 year policy. If you don’t have the time to get quotes and apply to different life insurance companies, talk to an online life insurance broker, they will be able to find a way around your particular problem to get you the cheapest quote possible. You will also benefit because of the competition on the internet – this means extra reductions as online brokers cut their commission.

Don’t do all the hard work yourself – let the professionals do it for you!