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By Chris Huntley
May 19, 2020
Rangely Garcia / Money

If you are one of the many Americans considering life insurance for the first time due to the coronavirus pandemic, be careful where you get your information. It’s easy to get tripped up by insurance jargon.

But not to worry. As a 16-year veteran insurance agent, I’ll tell you what every first-time buyer needs to know.

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1. Critical Factors That Affects Life Insurance Costs

You’ve probably seen a TV commercial for life insurance that says, “Martin can protect his entire family with $500,000 of coverage. His cost? Only $17 per month!”

If only everyone could get that rate! Believe me. During my career as a life insurance agent, I’ve seen some pretty stunned faces when I quoted my clients over $200 per month.

So, why is it that Martin from the TV ad pays so little and some people pay so much more? It’s because Martin is most likely a 24-year-old non smoker who is in better shape than Michael Phelps.

Martin has a lot going for him when it comes to keeping the cost of life insurance down. He’s young, doesn’t smoke, and is in excellent health. There are other critical factors to life insurance pricing as well.

The cost of life insurance mostly comes down to the following seven factors:

  1. Age – The older you are when you buy a life insurance policy, the more you pay
  2. Gender – Men have lower life expectancies than women so when all else is equal, they pay more
  3. Cigarette Use – Smokers pay two to three times more than non smokers
  4. Weight – Life insurance companies charge more if you have a higher BMI
  5. Health – You may pay higher rates if you have current health concerns or have a history of health concerns. The penalty goes up along with the severity of the health condition.
  6. Policy type – The longer the policy covers you, the risk goes up, and so does the price
  7. Amount of Coverage – It costs more for higher amounts of coverage

Other factors may affect your cost as well, such as travel plans outside of the U.S., family history of disease, and participation in hazardous activities such as sky diving. But the seven above are the ones that you should know.

My only recommendation here would be to use a specialty life insurance agency if you have a complicated health history. For example, say you’ve had a heart attack, stroke, cancer, or you have diabetes. Every company prices those health issues differently, so speaking to a knowledgeable independent agent who can shop your case around to multiple companies is ideal for getting the best deals.

2. Most People Should Stick to Term Life Insurance

A recent report by Policygenius showed the top two reasons Americans buy life insurance are for income replacement and to pay for final expenses or burial expenses.

For both of these needs, I almost always recommend a type of policy called term life insurance.

Term life insurance offers the lowest cost options for the most amount of coverage, over a duration of time, typically from 10 to 30 years (known as the ‘term). Your premium is fixed and often times, you can convert to a permanent policy once the term is up.

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The alternative to term life insurance is the other major life insurance type: permanent life insurance. Permanent policies, such as universal life or whole life insurance, are intended to cover an individual for his or her entire life. They typically cost two to 20 times more than term and I only recommend them in complex estate planning situations or to fund a business executive benefit plan.

How to Buy Life Insurance for Income Replacement

If you work and have a spouse or children who depend on your income, you should consider a term life insurance policy to protect the wages you will earn during your career. Whether you’re here or not, your family is depending on that money.

For example, if you’re 40 years old and make $60,000 per year, you could easily qualify for $600,000 to $1.2 million of coverage (10 to 20 times your income). The idea is not to make your family rich if you pass away, but simply to make them “whole.” A life insurance payout could replace the income you would have brought in over the next 10 to 20 years.

Term life insurance is the clear choice for income replacement because it typically calls for a large amount of coverage, making permanent plans like whole life insurance unaffordable for most Americans.

A 40-year-old, non-smoking man in excellent health would pay just $31 per month for a 20-year term policy for $500,000. Compare that rate to the same 40 year old who purchases a whole life insurance policy for $500,000. His cost would be $639 per month!

How to Buy Life Insurance for Final Expenses

While term is almost always the right choice if you’re under age 60 and want to protect your family against the loss of your income, seniors can also use term life insurance to pay for funeral and final expenses.

I’ve noticed most of my older clients don’t like the idea of burdening their children financially, so during my career as a life insurance agent, many clients, especially seniors, have asked for a $50,000 to $100,000 policy to pay off any credit debt, car loans, or fees to cover their funeral.

Since you can buy a 20 year term policy at age 65 and a 10 year term policy up to age 75, most of my clients have covered these needs using term life insurance.

A permanent plan could also be used for final expenses but the cost is prohibitive. A 65-year-old man would pay $416 per month for only $100,000 of coverage… and again, that’s assuming he’s in great health and is a non smoker. But the same man would only pay $97 per month for a 20 year term policy for the same amount of coverage. The cost alone forces most people to choose term life insurance.

Having said that, most term plans expire by age 85, so if you want something to cover you longer, you have to make the jump to a permanent plan.

3. I Typically Recommend a Medical Exam, But Not During Coronavirus

When you apply for life insurance, one of the ways life insurance companies lower their risk is by sending a nurse to new applicants’ homes to take an abbreviated medical exam. They typically take blood and urine as well as blood pressure and weight.

This type of policy is known as “fully underwritten” since the company may also pull your medical records and review them prior to making an underwriting decision, which can take weeks (or even months!)

No one likes to have their blood drawn or the inconvenience of waiting 6 weeks to find out if they’ve been approved. So, many consumers opt to buy policies that don’t require exams known as “no exam” policies instead. No exam policies often provide a same-day or next-day decision on approval. But they may cost as much as 10% to 30% more than fully underwritten policies.

If you can endure the 15-minute hassle of the exam and don’t mind waiting for your approval, it could save you hundreds or even thousands of dollars over the life of your policy.

The problem is with many states still on lockdown, it’s almost impossible to see an examiner right now. As a result, applying for a no exam policy is probably the only way most Americans can buy life insurance right now.

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But that doesn’t mean you should wait to buy life insurance. And that doesn’t mean you have to overpay.

If you need life insurance, my recommendation is to try to buy a no exam policy now so you at least have some coverage in place. Later, when the nation opens back up, if you want to shop for a better deal using the fully underwritten process, you can do so in your own timing.

If you have people who would be impacted financially as a result of your passing, don’t wait for the pandemic to pass to act. I highly recommend you look into protecting them with no exam life insurance. And in most cases, the most economical way to do that is by buying a term life insurance policy.

Chris Huntley is a life insurance agent and the founder of insuranceblogbychris. He is currently the President at Credit Knocks.The views in this story are his opinion and do not necessarily represent the views of Money.

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