Do you have financial dependents? Then life insurance is a necessity

The cost of buying most types of life insurance has either remained stable or dropped over the past decade, according to the Insurance Information Institute (I.I.I.). Yet almost six out of every 10 Americans surveyed recently say they have not purchased coverage as they believe it is too expensive.

The survey was released in early September by the nonprofit Life and Health Insurance Foundation for Education (LIFE) in support of Life Insurance Awareness Month. Besides citing the cost of life insurance, consumers responded that they just had not gotten around to buying it (23 percent) or did not know enough about life insurance to purchase a policy (22 percent). Industry observers estimate that 68 million adult Americans have no life insurance, and many of those who do purchase far less coverage than experts recommend.

“If someone relies on you financially, you need life insurance,” said Jeanne M. Salvatore, senior vice president and consumer spokesperson for the I.I.I. “The premiums are very reasonable when you consider the level of protection you receive.”

There are two major types of life insurance—term and whole life.

Term insurance is a form of life insurance that pays if the death occurs during the “term” of the policy, which is usually anywhere from one to 30 years .The premiums rates for term policies are lower today than they have ever been.

If you are buying a short-term life insurance policy (under 10 years), look for renewal guarantees. A renewal guarantee gives you the right to start a new term after the current one ends, paying a higher premium based on your current age, but without requiring you to undergo a new health exam or submit any other “evidence of insurability.” Without the renewal guarantee, you would have to shop for life insurance all over again and, if your health has deteriorated in the interim, you might pay higher premiums or not get coverage at all.

Whole life insurance is sometimes referred to as “permanent” life insurance, and it encompasses several subcategories, including traditional whole life, universal life, variable life and variable universal life. Unlike term life, permanent policies pay a death benefit whenever you die, even if you live to be over 100. Universal life is the most common type of permanent insurance policy, with traditional whole life the next most common type. The premium rates for whole life policies have generally remained stable in recent years.

“Look for a policy that meets your needs,” said Salvatore. “There are ways to save money when buying life insurance but they don’t always involve paying a lower premium immediately.”

The I.I.I. offers the following tips to maximize your life insurance dollars before and when you buy a policy:

Before you buy

Assess the quality of the company

An insurance policy is only as good as the company that backs it. You want to make sure that the company that issues your policy will be around to service it and eventually to pay the death claim. To help you find strong companies, there are several ratings agencies that assess insurance companies on their ability to remain financially sound over the long term. A rating represents an independent assessment of the insurer's ability to pay its claims on time and meet all its other financial obligations. Select from at least two of the four leading ratings agencies: A.M. Best, Fitch, Moody’s and Standard and Poor’s.

Look into group insurance

Consider participating in your employer-sponsored group life insurance program, even if you have to contribute to it financially. Employers often subsidize their group insurance costs, so it can be less expensive than purchasing an individual life insurance policy. Employer-sponsored group life insurance premiums are usually paid through a payroll deduction. Before making a final decision, be sure to compare employer-sponsored group and individual rates because, depending on your age and health status, group insurance may or may not provide a savings. In comparing group to individual life insurance, remember that if you have over $50,000 of group life insurance, the Internal Revenue Service determines how much it costs to provide the amount over $50,000 and imputes taxable income for that cost. The IRS rules are generally something consumers in their 50s and older as well as those who are buying larger amounts of life insurance coverage ought to consider.

Buy when you are healthy.

Find out into which rate class you will be grouped into and, if necessary, consider making some lifestyle changes—don’t smoke, maintain a healthy weight and exercise regularly—to qualify for a more favorable rate class. Buy when you're healthy. Older people and those not in the best of health pay steeply higher rates for life insurance, so buy as early as you can but not until you have dependents.

When you're ready to buy

Shop around to get a good rate

Life insurance is a very competitive business, and you’ll find differences of hundreds of dollars (for annual premiums) among financially strong companies for the same policy. Internet quotes may be a good place to start. You can also ask an agent or broker to get you a premium estimate.

Look for premium discounts

Most companies offer rate discounts for specified insurance amounts. For example, you might actually pay a lower premium for $250,000 of life insurance than for $200,000, or for $500,000 of life insurance than for $450,000, because a discount “kicks in” at the higher insurance amount.

Beware of “fractional premiums”

Typically, you can pay your annual life insurance premium in a single payment, or in smaller amounts more frequently during the year. Although the latter method might seem easier, some companies add steep charges for paying premiums in installments.