Buyer’s Guide to Life Insurance

Death is a fact of life, nothing is more certain in life than death; yet, this is a subject that no one likes to talk about. Some people go as far as even denying the inevitable that is death. Wouldn’t you want the peace of mind that comes from knowing, after you are gone, your husband, wife, children, or even maybe your grandchildren will be taken care of? If you are the primary provider for your family, wouldn’t you want to leave them with the financial stability to pay for funeral expenses, a mortgage, your children’s college tuition, and other securities that will maintain or increase their value of life? Well you can, because there is another thing in life that is as certain as death and that thing is life insurance.

There are hundreds of companies that will sell you variations of the same products or policies, at different prices. The main idea is to find the right insurance policy that will fit YOUR needs without costing too much. So the first step is identifying how much protection you need, this can be done with a family needs assessment (FNA). A FNA allows you to figure out (1) how much cash your dependents would need if you were to pass away, and (2) provide income for living expenses, educational costs, and future expenses. During an FNA, you will uncover the needs for life insurance by calculating funeral costs (which can cost an average $10,000-$15,000), debt (mortgages, car payments, credit card bills), day to day expenses for your family to retain their standard of living, and future needs for your children (college tuition, new homes, or vehicles).

After calculating how much protection you will need, the next step is finding a policy that fits you. All life insurance policies agree to pay a specified amount of money in the event of your death, but all policies are not the same. There are three main types of life insurance:

1. Term Insurance
2. Whole Life Insurance
3. Endowment Insurance

Term insurance is death protection for a term of one or more years; the terms are usually 10, 20 or 30 years. This policy has the lowest premiums and the benefits will only be paid if you die within the term of years agreed to in the policy. Many term policies are “renewal” for additional terms, even if your health has changed. Another feature of many term policies is that they are “convertible” meaning that they can be traded for a whole life policy or endowment policy, even if your health has changed.

Whole life insurance gives death protection as long as you live. The premiums are higher than a term insurance policy; however, the premiums of whole life insurance policies are lower than what you would pay if you kept renewing a term insurance policy until your death. A benefit of starting a whole life insurance policy is that it develops a “cash out” value. You can either take the “cash out” value or use it to continue insurance protection.

Endowment Insurance pays a sum, or income, to the policy holder if you reach a certain age. If you were to die before then, the death benefit would be paid to your beneficiary. Endowment premiums and cash values are much higher than that of whole life insurance.

After understanding the 3 main types of insurance, different “riders,” or options, can be added onto your policy. One example is a disability protection rider, which allows a policyholder to withhold premium payments if he/she becomes fully disabled. You must decide on which riders to add, and which to not add, depending on your needs and budget.

After purchasing the right policy, it is important to remember a few things:

First, only purchase a policy if you plan to stick with it. A policy is a great buy when it is held for 20+ years, but it can be very costly if you quit early.

Second, read your policy carefully and ask your agent if you have any questions or concerns about terms or conditions you do not understand.

Third, it is very important to go back to your policy at least once every two years to keep it up to date on any changes in income and lifestyles.