What to Look for in a Life Insurance Policy

By Carolina Pichardo

It seems that, with the recent economic downturn, environmental calamities and other health scares, a sense of protection and security are the top needs for most Americans. Although having life insurance could provide that sort of reassurance, having the wrong policy could be costly and have the opposite affect. 

Most insurance policies function basically the same. They cover all types of death (with the exception of suicide) and provide a premium that increases each year. This amount, which is the insured’s current income multiplied by the number of years left until retirement, should be enough to pay off debts, such as a mortgage and credit cards, and account for the living expenses of the beneficiaries.

Keep in mind, however, that since the premiums also depend on the health and age of the individual, as well as the occupation and lifestyle, the fees vary. Insurance companies calculate the risks involved, such as health and age concerns, when offering their policies.

Therefore, it’s best that prior to going on the life insurance hunt, policy holders are aware of their own needs, how they’ll be willing to invest and for how long, and have the capacity to conduct the necessary research. 

Determine Your Needs:
Before signing up for the right insurance policy, determine your needs, obligations and goals. Whether you’re trying to provide support for a surviving spouse or pay estate taxes, it is important that you’re aware of what this additional income will cover. Online calculators can help you estimate how much you’ll need.

Consider the Terms of Policy:
Once you know what you need from a policy, it’s time to research the best terms of policy. This is categorized into two sections: permanent life insurance and term life insurance. Permanent (or cash value insurance) covers the individual at a fixed premium for a lifetime. Although premiums for this coverage is a lot higher, much of that money is allocated into a cash value portion that grows over time and becomes available to use. As good as this option sounds, additional financial planning and consideration are needed for these policies. If you’re twenty-five years old, for example, you will not know what your needs will be in thirty years.

With a term life insurance policy, on the other hand, the coverage is for a specific time frame at a fixed rate. There are annual policies that come up every year, as well as terms that go for five, 10 and 20 years. Think thoroughly of how long you think you’ll need coverage, because once that selected period ends you’ll be required to either let go of the plan or obtain coverage that has different rates and requirements.

Renewable and Convertible:
Term life insurance policies are simpler sign-up for, and since companies readily provide this plan, it’s a big and competitive market to search. Besides having the option to select for how long the coverage will last, with the term life insurance policy, individuals can also determine how to best manage their money. 

Most term life policies are “renewable,” which means they could be automatically restored without further questioning and medical exams. These are also “convertible” policies, which offer the individual receiving coverage an equivalent cash value policy from the same carrier.

Shop and Check Company History:
Shopping for a term life insurance is a long and complicated process, but one that’s a matter of life or death. It’s important to request applications, compare and request insurance quotes from a knowledgable agent. Also, check the company’s performance and policy’s projected performance through Moody’s or Standard and Poor’s. Not only should you review other complaints or issues from other clients, but you want to make sure that the life insurance policy that you select will be able to adequately provide for your family.

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