How to Determine Which Life Insurance Offering is Best for You

In the last ten years life insurance premiums have fallen by 33 percent. Americans are living longer and longer, which means insurers have to pay benefits less often. Although buying coverage is not an easy decision to make, it's critical if you want your loved ones to be financially secure after you die.

One in three Americans has no coverage, and two out of every five people who are insured don't think they have enough protection. For those who have been putting off purchasing coverage because of the costs, there is good news. Increased competition and lower mortality rates have joined forces to make costs lower than ever.

This is a way to take care of your loved ones or people who financially depend on you after you die. Even if you don't have a family right now, it would be wise to get a policy while you're young to get the best rate on your plan. There are a number of different kinds of protection, that it can be somewhat overwhelming for someone entering the market for the first time. You'll need to calculate exactly how much of a benefit you'll need. Obviously, the more value to your policy, the more expensive it will be. Some experts like to use a rule of thumb, such as that you need to provide several years' worth of income to your family. But that might not be the solution you want. There are many online calculators that will help you determine exactly how much assurance you need to safely - but affordably - protect your family for the long term.

Understanding the Different Types of Protection

Policies don't come in a generic, one-size-fits-all format. Rather, insurers offer consumers an array of choices to suit their unique needs. The two most popular types of policies, term and whole life, both provide a death benefit but do so in vastly different ways. To determine which option works best for your and your family's needs, you'll need to examine the length of your coverage needs, your budget, and how you intend to use your plan.

Term Insurance Offers Essential Protection at a Low Price

The defining characteristic of term policies is that they provide a death benefit for a finite amount of time. In other words, the agreement expires once the term of the policy is up. For example, if you purchase a ten-year term policy, your beneficiaries would receive the proceeds of your plan if you died within those ten years. Once the ten years are up, your coverage ceases unless you renew. These policies usually come with 10, 15, 20, or 30 year terms. Term life is ideal for those who have only short-term needs. Because this is also the most affordable type, it is very popular with those who want a significant amount of coverage with reasonable pricing.

Permanent Coverage (Such as Whole Life Insurance) Protects for Life

This policy, on the other hand, offers consumers a lifetime of insurance protection. That is, your beneficiaries will receive the proceeds of your plan no matter when you die as long as you are current on your premiums when you pass. As an added benefit, the premiums do not increase as you age. If you have trouble saving and investing your money, a whole life policy might be a wise option, as it dedicates a portion of your premiums to various securities to form a cash value. A cash value option means your plan will build value over time that will augment the specified death benefit. It also means that you can borrow or withdraw from the cash value portion of your policy whenever you like. Of the permanent policies, whole life is the simplest form.

Other Types of Coverage

  • Variable Life: another one of the permanent coverage options is variable life, which offers many investment opportunities and flexible terms. The most unique feature of variable policies is that they allow the insured to adjust, to an extent, the plan's death benefit as well as the size and timing of the premiums. In other words, you can choose, within limits, how much you want to pay on your policy and how large of a death benefit you need at any given time. Moreover, you can invest a part of your premiums in fund options that are professionally managed.
  • Universal: also a form of permanent coverage, universal life can offer inexpensive, guaranteed protection with optimal flexibility. With universal policies, you have the ability to change your premiums and death benefit within limits. You can also choose to grow the policy's cash value or pay cheaper premiums in order to concentrate on your guaranteed death benefit. Remember that with universal, you will have to pay higher prices if the cash value growth of your policy is less than expected. Your cash value will grow according to periodically adjusted fixed interest rates. If these rates drop, your costs will increase to compensate for the difference.
  • Convertible Options: This will give you the option of converting your term life agreement into a permanent option if you anticipate needing to change your coverage in the future. Having this coverage will prevent you from being charged higher premiums when you change policies.

Which Option Should I Choose?

Determining the coverage that works for you requires you to first look at the length of your protection needs. For instance, some policyholders have small children and a mortgage, so they opt for a 20-year plan to see them through until their children are grown and their home loan is paid off. Budget concerns will also influence your plan, as term coverage is much cheaper initially, but the costs rise as you age. Lastly, think about how you plan to use your insurance. If you want your plan to double as an investment vehicle, whole life is a good choice.

What Factors Determine the What I Will Pay?

The following things are what insurers use to determine how much you will pay:

Your Age

Age is probably the most important factor that insurers consider when calculating your costs. The older you get, the more likely you are to die. Thus, older people will pay higher rates than younger people because they are a higher risk for the insurer. As you age, your rates will increase unless you lock in a fixed premium with permanent life insurance. These plans guarantee you a certain annual premium for your remaining years. Term premiums increase as you get older and can become unaffordable in your later years.

Type of Insurance Coverage

The type and amount of coverage you purchase will also have a profound impact on how much your plan will cost. Term life insurance is generally the most basic and least expensive type available. How long the term of your policy is will influence your premiums-the longer the term, the higher the cost. Permanent life insurance is initially more expensive than term counterparts, but you get the benefit of locking in a premium for good. Permanent offerings tend to be pricier than term because part of the money goes toward investments that the insurer makes on your behalf, which allows your policy to accrue cash value over time.

Your Provider

Of course, the company you choose to issue your plan will also affect your rates. Remember that insurers are out to make a profit, and, like all companies, the prices for their products can vary greatly. When you purchase, you want the security of knowing that the company will actually be able to pay out the proceeds of your policy someday. For that security, you would need a company with an A+ rating on the Standard & Poor's index. This kind of company would be able to charge much higher premiums than an unknown, up-and-coming insurer.

Save Money While Enjoying Peace of Mind

No matter whether you are a man or woman, husband or wife, mom or dad, you need some sort of protection. The following are some of the things that you can do to make sure that you save money on your plan.

Comparison Shopping is Essential

The best way to save money is to do your homework. Everything you need to compare carriers and the policies they offer can be found on this site. Take the time to review each company and the coverage they provide before you purchase a plan. You can get more benefits for less money by doing just a small amount of research. You might also consider refinancing your policy in order to lower your costs.

Don't Pay for Anything You Don't Need

Most agents make their money by getting you to buy extra coverage options you may not need. Always be skeptical of additional offers from your insurer like accidental-death riders or waiver of premium riders. You will be able to choose the right levels by first understanding your agreement.

Stay Healthy, Enjoy Discounts

There are a number of things you can change in your lifestyle that can directly affect the amount of money you pay. Many insurers charge twice as much to insure a smoker due to the high risk of cancer related deaths. Those who abuse alcohol can also expect to pay more. Get healthy and see a physician to prove to your insurer that you are less of a risk - the extra savings will be well worth it.

Using the gym is a great way to improve your health. When you are healthy you are less of a risk health wise. You can improve your diet by eating healthy foods and get in shape by exercising regularly. Anytime the agent senses a risk they will be more likely to charge you higher rates. Another example of this would be if you wait until you are 60 years of age before you purchase. You will be seen as more of a risk, and should expect to pay a higher premium.

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