What to Look for Before You Buy Life Insurance
Before you buy a new life insurance policy, take the time to understand exactly what each life insurance policy provides. Research as much as possible and compare a variety of quotes from a variety of companies to ensure you receive the best rate. Don't assume your insurance policy fully protects your family. Take the extra time to discuss with a qualified insurance agent the risks and costs of each type of life insurance policy as well as which policy best provides optimal protection for your family.Why you need life insurance
If you have a home and are a substantial source of income for your family, then you need some form of life insurance to protect your family. Young professionals may only need term life (temporary) insurance to protect their families from paying unpaid school loans. Consumers without any debt or dependents generally do not need life insurance.
Cost
Each life insurance policy varies in price. Some like term life (temporary) insurance offers consumers an affordable, but limited life insurance option. Others like whole life (permanent) insurance are more expensive, but offer policyholders additional options like a cash value and the ability to receive dividends. However, with any life insurance policy, the death benefits should equal at least five times your annual salary to provide sufficient time for your family to readjust. If you have multiple children, it may be wise to increase the amount of coverage.
Options
There are many life insurance policy options available for consumers. Some of the most popular options are:
- Whole life: Whole life insurance is the most common form of permanent life insurance. Consumers who purchase this form of life insurance pay fixed premiums for the life of the policy. Whole life policies generally have fixed death benefits, which are determined before the policy begins. If policyholders wish to increase the amount of their coverage, they may be required to undergo a physical exam to determine the status of their current health. Whole life insurance policyholders also have the option of canceling their policy and receiving a cash value amount. When the policy first starts, the cash value is much lower than it is after many years of successfully maintaining the policy.
- Variable life: This form of permanent life insurance is much like whole life insurance except that it allows policyholders to invest a small percentage of their premium into stocks, bond, mutual funds, etc. If these investments perform well, the cash value of the policy increases. However, if the investments perform poorly, both the cash value and the death benefits decrease. Although, many variable life insurance policies have a minimum death benefit built into the policy. Variable life insurance policyholders also have the option of receiving a cash value if they prematurely cancel their policy.
- Universal life: This form of permanent life insurance provides consumers with a great deal of flexibility. For example, universal life policyholders have the option of using the dividends they earn to reduce their annual premium costs. These policyholders can also adjust the death benefit amount, although any adjustment must follow specific guidelines and may incur additional fees. All of the specific guidelines for this form of insurance as well as every other form of coverage are in the policy prospectus.
- Term life: Unlike the three previous forms of life insurance, term life insurance is temporary. Policyholders generally choose between 10, 20 or 30 year terms and receive protection only during the allotted period. Term life insurance is the most affordable form of life insurance, but does have certain disadvantages. For example, term life insurance pays death benefits but does not offer cash value if terminated. It is possible to renew term life policies although the annual premiums will increase.