Choosing the right life insurance policy is one of the hardest, but most important financial decisions you’ll ever make in your life. When looking at available plans you might ask yourself if it’s best to go with the cheapest plan available. You might ask yourself if a whole life plan is best for your needs. You might ask yourself if there are other choices, like a return of premium policy, that will likely best for you.
Like all other aspects of personal finance, the best solution for you depends entirely on your personal needs and financial goals, but we will use this post to begin exploring your options and help figure out exactly what kind of insurance works best for you.
What You Need to Consider Initially
When you begin considering your life insurance initially, you want to first think about just how much coverage you need as well as how long you will need it for. All of this has to be considered in the context of what you can afford. Someone at the age of 35 with one child and a six-figure salary, for instance, may want a policy that provides funds for their spouse as well as money to cover their child’s education costs. That term policy will build no cash value over time, but may work be sufficient in meeting the person’s needs.
In another instance, say you’re earning significantly more than in the scenario above and can afford a higher premium for a plan that will provide a death penalty in addition to building a cash value. In this case, you can use the policy as an asset in your future financial plans. Whether your plans involve retirement, education, or anything else, this policy will allow you to access the money in the plan through a policy loan.
Policies with a cash value component usually consist of whole life, universal life, and variable life insurance. Put simply, a whole life insurance policy lasts for your entire life so that you can provide the death benefit to your beneficiaries. Universal life insurance is similar in that it is permanent, but it is different in that it offers some more flexibility in the death benefit and monthly premiums. Likewise, costs associated with the policy can vary as the economy changes.
In addition to what I just talked about, I’d like to briefly mention return-of-premium insurance policies. With this type of policy you get a savings feature that has your premium payments returned to you after the term of the policy. It falls in between normal term insurance and a permanent insurance plan, making it possible to ensure your family will be taken care of if you unexpectedly die at a time when your death would make things financially difficult for them.
When the term ends, you get a check back in the amount of all of the premiums you paid, making it a good insurance policy for anyone who can’t or doesn’t want to pay for a whole life policy but feels like a standard term policy is a waste of money.
Working with an Agent
When you begin working with a life insurance agent, you will often get quotes from multiple companies. A common misconception is that the price should be the same across quotes for the same term and same death benefit, but this isn’t usually the case.
With cash value policies, the features can vary between plans, which is why premiums are different prices. Likewise, like with many things, brand matters. You’ll likely pay more for a policy from a highly rated insurance company over a smaller one. Still, you don’t often hear about insurance companies not being able to pay on claims thanks to strict industry regulations and oversight of the general fund.
If you have any questions about using your life insurance policy as part of planning your financial future, don’t hesitate to get in touch and let me know how I can help you today.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. Variable Universal Life Insurance/Variable Life Insurance policies are subject to substantial fees and charges. Policy values will fluctuate and are subject to market risk and to possible loss of principal. Loans from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy’s account value and death benefit. A policy loan could result in tax consequences if the policy lapses or is surrendered while a loan is outstanding. Riders are additional guarantee options that are available to a life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policy holder should review their contract carefully before purchasing.