How to choose the right Life Insurance
Updated: Jul 12, 2021
When it comes to life insurance, there is no one size fits all policy. There are all kinds of things to think about when it comes to buying a life insurance policy to protect your loved one’s future financial needs. Depending on your unique financial situation, you may need a small or large amount of coverage. You may need short- term or lifetime coverage. Regardless, life insurance is an extremely important product to buy if you have people depending on you.
Life insurance- Basics
Are you like most life insurance shoppers in that you get a little overwhelmed with all of the available options and prices? Life insurance can get pretty complicated depending on the type of policy you’re shopping for. Getting a life insurance policy that can meet your budget and goals isn’t hard. You just need to follow certain guidelines.
Classification: Term Life and Permanent Life insurance:
A life insurance policy can give you true peace of mind. There is such a weight off your shoulders when you know that the financial future of your family or business is protected. Life insurance provides your family a tax-free benefit when you pass away. There are other benefits of life insurance depending on the type of policy. You’ll need to know how the two main types of life insurance policies work and how they differ.
Whether Term or Permanent Life Insurance?
Term Life Insurance:
Term Insurance is typically the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time. It provides coverage at a fixed rate of payments for a limited period, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the life insured dies during the term, the death benefit will be paid to the beneficiary The death benefit can be used to pay for your funeral, replace your income, pay for your children’s education, pay off your mortgage, or any other financial situations. It more like Car insurance pay as you go. A term life policy will provide your loved ones a tax-free benefit when you pass away.
Permanent Life Insurance or Whole Life Insurance:
Whole life insurance or permanent life insurance provides permanent death benefit coverage for the life of the insured. In addition to paying a death benefit, whole life insurance also contains a savings component in which cash value may accumulate on a tax-advantaged basis. These policies may be known as “traditional” life insurance. Whole life insurance provides your lifetime coverage if you pay your premiums. You can choose from several permanent policies based on your specific needs and goals. Here are the main types of permanent policies.
Whole Life: With whole life insurance, you’ll have a fixed death benefit to go along with a fixed premium. The Whole life grows cash value that can be withdrawn as policy loans. Whole life is often the most expensive permanent policy.
Universal Life: Universal Life Insurance (UL) can provide shoppers flexibility. Your premiums and death benefit are flexible by having the ability to alter your premium payment amounts as well as the death benefit amount.
Indexed Universal Life: Index Universal Life (IUL) is a type of UL policy. It’s very similar to a UL, with one exception. An IUL’s interest is based on the indexes of the stock market vs a fixed rate of a UL policy. This means an IUL can grow more cash value compared to a UL (potentially) depending on the market.
Guaranteed Universal Life (GUL): This is often the most affordable permanent policy type. It is often called “Lifetime Term” because it provides coverage for your entire life but is affordable like the term.
You may use the cash value growth while you are still alive and still have a death benefit when you die. The cash value can be used as supplemental income, help pay for emergencies or any other needs.
How much coverage should one need? - Selecting Coverage:
You need to think about when buying your life insurance policy:
Length: Do you need coverage for your entire life or a shorter timeframe? The Term is great for coverage lengths from 1 to 30 years. Permanent life insurance is optimal for those looking to have protection for their entire life.
Amount of coverage: Term life insurance policies are usually lower-priced policies compared to permanent life. Just know that your final price for your coverage will be based on a variety of underwriting factors such as – Gender, Health records, lab tests, Lifestyle, and family medical history.
Employer-based Term Life Insurance:
Think of your group policy through your employer as a bonus benefit that your job provides you. Your employer’s life insurance policy is not designed to meet all of your future needs. Buying your policy provides you the ultimate protection. What happens if you change employers? You can lose your group coverage and the benefits that have been accumulated.
When is the right time to Buy A Life Insurance Policy?
The best time to buy a life insurance policy is now. Why? When it comes to timing, the younger you are when you buy life insurance, the better. This is because at a younger age, you'll qualify for lower premiums. And as you get older, you could develop health problems that make insurance more expensive or even disqualify you from purchasing a plan