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Comparing life insurance policies goes well beyond just comparing price. When you are buying life insurance, you need to think about the present and the future so that you can choose the right product, the right death benefit and the right insurance carrier.
While rates are extremely important, especially when you are shopping on a limited budget, finding a plan that suits your short-term and long-term needs is crucial if you are going to make the most of a financial planning tool like life insurance.
Consumers choose to buy life insurance when they want their beneficiaries to be able to maintain their financial standing and quality of life after the policyholder dies. Some may also buy coverage to pass on a legacy to their heirs or to cover estate taxes when the estate is large.
The type of life insurance policy that you purchase will depend on your current lifestyle, who depends on you financially, your financial plans, and your long-term goals. Here is helpful information to help you distinguish between the right policies and policies that are suited to meet other needs.
Be sure to also compare quotes before making any decisions by using the FREE search tool above!
Determining If You Need Life Insurance
Do you know whether or not life insurance is right for you?
If you have money in your savings to cover your financial expenses and you have no debt to pass on and no dependents to support, you may not have a need for insurance.
If, however, you have a partner, children, future education needs, a need for income replacement and money to cover financial obligations, financial planning is crucial.
The amount of coverage and the type of insurance that choose to apply for and buy will be dependent on your financial planning strategy.
To define your needs and make the right decision for you and the entire family, you will first need to know what options are available to you.
Types of Life Insurance Contracts That You Can Choose From
There are three different types of life insurance that you should be familiar with when you start to compare plans: term life, permanent life, and accidental death and dismemberment.
Each type of insurance has their own special features that can affect the premium, how long the insurance is valid, and how much coverage you will be able to ultimately afford. Here is a brief description of each category of insurance:
Annual and Level Term Insurance Plans
Term insurance policies are very straightforward. Consumers will buy a specific amount of life insurance coverage that lasts for a specific period of time. Once that time period is up, which is referred to as the term, the policy will expire and you will need to renew or purchase new insurance for continued protection.
This temporary type of insurance is the most common type of insurance purchased by individuals today because it is affordable and it suits a specific type of financial need that will not always be present.
There are two different subgroups of term insurance and these are called annual term insurance and level term insurance.
Annual term insurance has declined in popularity as level terms are easier to qualify for. An annual term is a policy with a one-year term that will renew every year. Because the term is only one year in length, the premium will adjust once a year like this chart of annual versus level term premiums displays.
The upside of an annual term is that you do not have to go through the lengthy and inconvenient underwriting process to qualify for coverage.
Level terms have a level death benefit that is provided through the term of the policy. The term periods can range from 5 years to 40 years in length depending on the carrier you apply with and your age at the time that you apply.
Most of the competitive level term policies have a guaranteed premium. This means that you will pay the same cost for pure insurance the entire time that you own the term.
Top-rated insurers may also offer a renewable term. These term plans can be renewed when the term expires as long as you qualify.
You should also consider adding a rider that guarantees your insurability if you would like to keep your insurance in the event that you fall ill or are diagnosed with a condition that would lead to denial without the rider.
This rider allows you to raise the face value of the policy within specific time periods as well.
Cash Value or Permanent Insurance Plans
A permanent life insurance policy, also called a cash value policy, is a complex type of insurance that offers both term life insurance and a living cash value benefit that can accumulate or be used while you are still living.
Permanent insurance is not meant to provide protection that will cover debt or replace income while you are still gainfully employed. Instead, it is meant for financial planning needs that are more permanent and tax planning strategies.
There are three different types of permanent insurance that are very popular today: Whole Life, Universal Life, and Variable Universal Life.
Whole Life Insurance
Whole life insurance was the original form of permanent insurance available to consumers. A whole life plan remains in effect your entire life, unless you quit paying premiums.
The policy never needs to be renewed and the premiums that you pay at policy inception are the same premiums that you will pay when the policy has been in effect for 30 years.
You will pay premiums that cover the cost of insurance and that also go into a cash account. This account is invested and earns a guaranteed interest rate, which helps balance the cost of insurance.
If you borrow or withdraw the cash from the cash account, you must pay it back or pay higher premiums to keep your insurance active.
Universal Life Insurance (UV)
Much like whole life, a UV policy will stay in effect for a lifetime and earns cash values. Where the policy differs is flexibility. Universal Life makes permanent life insurance more flexible for people who do not want to commit to paying a certain amount of money every month until they day.
With this type of plan, you can decide how much you can afford to pay at the beginning and then create an illustration that will allow you to keep the policy active. You will eventually need to raise the amount you pay or fund the plan with a large chunk of money that will earn interest and cover the premium costs.
Universal life is good if you have experience in finance and you are able to watch the plan so that you can make the right investment decision so you have a savings and life insurance benefit.
Variable Universal Life Insurance
Variable Universal Life is just like the standard policy except for the way that your premiums are invested. In a standard policy, the premiums are invested in conservative, pre-determined money market accounts.
The variable policy allows you to take investment risks and get rewarded. With the risk can come setbacks. If you earn higher interest, this will go into the account value, but if you earn less, the death benefit can decrease.
Accidental Death and DismembermentThere are few exclusions for term life and permanent life. Most of the exclusions are surrounded around suicide or death because a condition that was diagnosed but never disclosed within two years of the application date.
Accidental death policies do have exclusions for illness. These policies specifically provide coverage when the policyholder is an accident that leads to disfigurement, the loss of a limb, or death.
You do not need to medically qualify because your health does not affect risk.
Assessing Your Individual Needs To Choose the Right Insurance Policy
There are instances when term insurance is much more suitable for you than permanent insurance.
Typically a term policy is best when you can match the length of the term to the how long you will need life insurance.
If you have a mortgage that will last 20 more years, a 20-year term may be ideal. There are also times when permanent insurance is best.
If you want to accumulate savings, borrow funds, or pay off taxes that will never go away, whole life or universal life will offer you what you are looking for. Make sure to narrow down the options to make the right choice.
Once you settle on a policy type, the next step in the process will be to choose the right death benefit. You also need to compare the cos of insurance with several insurers.
To do this, you can use an online quoting tool, such as the FREE one below, that will help you compare the rates with the top companies doing business in your state. Gather the information you need, enter it, and apply for life insurance today.