Insurance
Questions/Tips Insurance

Guidelines for Purchasing Life Insurance

by Nancy Osborne, COO of ERATE®

March 10, 2007

Calculate the amount of life insurance coverage you and your family would truly need in the event a tragedy occurs. What would be required in order for your dependents to maintain a reasonable standard of living?

Buy low-load insurance policies which pay minimal up front commissions to an agent as this will help minimize your overall insurance expenses and keep the ratio of commissions to premiums as low as possible. Work with an independent insurance agent who does not work for only one insurance carrier, you'll want an agent who represents many different companies as this will help assure you the least expensive, highest quality policy available. Also take advantage of any online resources to assist you in your shopping and price comparisons and be sure to check insurance company ratings as you want to ultimately buy your policy from a solid highly rated company.

Buy a policy of insurance that covers only the period of time during which you are exposed to risk. For a period of 30 years or less, term life insurance is likely your best, most cost-effective coverage option.

When unsure of the time frame you require for coverage, it may be wise to purchase a policy with a conversion option that would allow you to convert from a standard term policy to a policy of whole life. Be aware that the trade off involved in having the conversion option is of course a higher cost.

Create and customize your own whole life policy by purchasing a policy of term life and using the savings or spread in your premiums to invest in an IRA or to pay off any high interest debt you've accumulated.

Only use whole and universal life as a tax-sheltered investment vehicle if you have exhausted all other sources of tax-advantaged savings (i.e. IRA's, 401(k) and the like).

Before purchasing whole or universal life compare the associated investment options of the policy to all other tax-sheltered investment vehicles to determine which options will truly help you meet your long range objectives.

Nancy Osborne, ERATE.com Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.