Photo: KnowInsiders
Photo: KnowInsiders

Life may be like a box of chocolates. But buying life insurance is more like ordering coffee at Starbucks, says Faisa Stafford, CEO and president of Life Happens, an industry-funded nonprofit that educates consumers about insurance. There are so many options that it’s hard to know what to get. “It can be extremely confusing,” she says.

In fact, confusion over how much and what type of life insurance to buy is one of the top reasons people give for not having life insurance, according to a survey by Life Happens and LIMRA for the annual Insurance Barometer Study. But the COVID-19 pandemic has been a wake-up call for many Americans and has prompted some to buy life insurance for the first time, according to a separate Life Happens survey.

Health insurance: How it protects you from health and financial risks

No one plans to get sick or hurt, but most people need medical care at some point. Health insurance covers these costs and offers many other important benefits.

Health insurance covers essential health benefits critical to maintaining your health and treating illness and accidents

Health insurance protects you from unexpected, high medical costs.

You pay less for covered in-network health care, even before you meet your deductible.

You get free preventive care, like vaccines, screenings, and some check-ups, even before you meet your deductible.

If you have a Marketplace plan or other qualifying health coverage through the plan year 2018, you don’t have to pay the penalty that people without coverage must pay.

Protection from high medical costs

Health insurance provides important financial protection in case you have a serious accident or sickness.

People without health coverage are exposed to these costs. This can sometimes lead people without coverage into deep debt or even into bankruptcy.

It’s easy to underestimate how much medical care can cost:

Fixing a broken leg can cost up to $7,500

The average cost of a 3-day hospital stay is around $30,000

Comprehensive cancer care can cost hundreds of thousands of dollars

Having health coverage can help protect you from high, unexpected costs like these.

How a Marketplace health insurance plan protects you

When you have coverage, your plan protects you from high medical expenses 3 ways:

• Reduced costs after you meet your deductible: Once your spending for covered services reaches your plan’s deductible, the plan covers part of your medical expenses. Marketplace plans cover between 60% and 90% of your covered expenses after you’ve met your deductible.

Example: If your plan has a $1,000 deductible, you pay the first $1,000 in covered services. After that, your plan pays between 60% and 90% of your covered expenses, depending of what kind of plan you have. You pay between 10% and 40% of the costs as coinsurance or copayments.

• Out-of-pocket maximum: This is the total amount you'll have to pay no matter how much covered care you get in a plan year.

Example: If your plan has a $3,000 out-of-pocket maximum, once you pay $3,000 in deductibles, coinsurance, and copayments the plan pays for any covered care for the rest of the year. This provides important peace of mind and protection from very high medical costs.

• No yearly or lifetime limits: Health plans in the Marketplace can't put dollar limits on how much they’ll spend each year or over your lifetime to cover essential health benefits.

If you’re considering buying life insurance but are confused, these 10 tips will help:

Tip No. 1: Assess your current financial situation

Photo: Run The Money
Photo: Run The Money

You need a true picture of your financial health before you can figure out what type of life insurance you need and how much, Stafford says.

Consider what you have in place to support loved ones who depend on you financially. This would include an emergency fund, retirement savings and any life insurance coverage through work. You might find that you’re not as prepared for the unexpected as you thought.

Stafford recommends working with a financial advisor to discuss what needs you should cover with life insurance—whether it’s a mortgage that will need to be paid, children who will need to be supported, a small business to maintain or a legacy you want to leave. Your workplace might offer access to a financial planner as part of your benefits. Or you can find a fee-only planner through the National Association of Personal Financial Advisors.

Tip No. 2: Selecting the right insurance amount

At the time of selecting a health insurance plan, one should select the amount wisely as it covers the medical expenses for a year. Take your age into account; the younger you are, the lower the sum insured you need. One should also take a look at his or her income levels to analyze the premium affordable. Another vital aspect is the add-ons for they impact premium amounts. Make sure you chose a sum insured which won’t fall short in case of an emergency and whose premium is not too exorbitant.

Tip No. 3: Only buy insurance to maintain your existing standard of living

You don’t need insurance for events that won’t severely strain your finances. Start with your basic needs (home, auto, business), then work your way to include other needs (cyber, professional liability). You can always add coverage later for something if you change your mind. You can minimize your risk and maximize your savings by buying insurance that suit your needs today.

Tip No. 4: Compare insurance policies

The two basic types of life insurance are term insurance and savings-cum-protection insurance. Term insurance provides indemnity against events that would otherwise be financially distressing.

Term insurance is cheap – a large insurance cover can be had for a smaller premium.

There is no payment made by the insurance company if the insured survives the policy period. In contrast, savings-cum-protection insurance gives you a maturity benefit which is equal to the sum insured plus bonus additions. Term insurance is only for the financial protection of your dependents against an unforeseen event where you do not receive any personal benefit. Your choice should depend on your needs, both immediate and future.

Tip No. 5: Understand what affects your life insurance rate

The two key factors life insurance companies consider when determining the rate you pay for coverage are health and age. The younger you are when you buy life insurance, the cheaper it tends to be, Winslow says. That’s because you tend to be healthier when you’re younger, and therefore less risky to insure.

The rate you pay also depends on the type of policy you get and how large the death benefit is. If you get a term life insurance policy, the length of the term you choose also will affect your premium.

If you can only afford a term life policy now but want permanent life insurance, most term life policies offer the option to convert to permanent life insurance. You can lock in a low rate with term life now and switch to a permanent policy if your income increases.

Tip No. 6: Review your insurance needs on a yearly basis

As your needs evolve, so will your insurance policy. Maybe you’ve acquired a new vehicle since you got auto insurance for your primary vehicle, or perhaps you began to operate a small business out of your home. When you’ve made a change, it’s important to consider whether your policy needs to adapt to new risk exposures. Keep in touch with your insurance provider or broker to stay on top of your insurance needs.

Tip No. 7: Prepare to answer lots of questions when applying

Photo: The Irish Times
Photo: The Irish Times

The quote you get from an insurer typically is just an estimate of what your premium will be. To get a policy, you’ll have to fill out a lengthy application. You’ll be asked questions about your age, weight, personal medical history and mental health, family medical history and tobacco use.

The insurer also will ask questions about your driving record and whether you have a dangerous job or hobbies that make you more of a risk to insure. This information is used to determine what your actual insurance rate will be.

Tip No. 8: Don’t just focus on premium

The rate you pay for life insurance is important because you want to ensure the premium fits in your budget. After all, a policy won’t do you any good if you can’t afford to pay the premiums. However, price shouldn’t be the only factor you consider.

If you’re buying a cash value life insurance policy, the policy’s internal costs can be just as important as the premium you pay. If you’re looking at indexed universal life insurance, pay special attention to guaranteed vs. non-guaranteed parts of the policy illustration. Consumer advocates have concerns about dishonest sales practices for indexed universal life insurance.

Finding the best life insurance companies is important. Look for a company that has strong financial ratings in the A range from independent rating agencies such as A.M. Best, Moody’s and Standard & Poor’s. Insurance companies provide ratings on their websites. You can also ask your life insurance agent to provide companies’ ratings.

Tip No. 9: Consider bundling several policies with one insurance carrier

There may be value in bundling several policies with one insurance carrier. If you’re looking to insure multiple vehicles or obtain multiple types of business coverage (like liability, property, and cyber risk), then you may want to find a single insurance provider who carries multiple products — they may be able to offer you multi-policy discounts or loyalty programs.

Tip No. 10: Check the claim settlement history of the insurance company

You buy an insurance policy so that in the event of a future need, your insurance company pays the promised benefit or benefits. Just as the insurance company verifies your insurability, check the claims payment ratio of the insurance company. It does not take much to do research online on the claims history of an insurance company.

The IRDAI also provides claims-related information on its website. The insurance company may have rejected some claims but you need to check the reasons behind the decisions. Insurance companies cannot and will not pay if a claim is a fraudulent one or is not payable for some other reason. Knowing how much insurance protection to buy and from whom is not enough. It is essential that you do it when you are young so that you could be adequately insured.

Insurance companies negotiate discounts with health care providers, and as a plan member you’ll pay that discounted rate. People without insurance pay, on average, twice as much for care.

This means when you use a network provider you pay less for the same services than someone who doesn’t have coverage – even before you meet your deductible.

Sometimes these savings are small. If you’re insured and use a network provider, you may pay $25 for a flu shot instead of the $40 someone without coverage pays.

In other cases the savings can be big. If using a network provider, you may pay $85 for an office visit instead of the $150 someone without coverage pays. Savings can be even higher for more expensive services.

So even if you don’t reach your deductible during the year, you can save a lot of money on your covered medical services just by being enrolled in an insurance plan.

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