The vast array of life insurance options available on today’s market can be mind boggling to the average consumer. Which is the best option? How can you choose? With a bit of research and some careful consideration of your family’s lifestyle and needs, you should be able to make the right choice. Below are a few options you may encounter when looking to select life insurance:
Term Life Insurance: This form of life insurance is typically the most cost-effective option for families. A policy is purchased for a set time period, or term, which promises to pay out to beneficiaries during that time in the event of an untimely demise. Families on a budget often opt for term life insurance because it offers the basic securities that most parents want: to ensure that there will be enough money to cover their children’s expenses until the completion of college.
Term life insurance can be purchased to span varying lengths of time. Some policies may only last for 5 years, while more extensive policies can cover 20, 30 or even 40 years. Since the premiums may increase over time, this form of coverage can also be purchased as a “level term,” meaning that the premium remains constant for a time period that extends beyond one year. After the term has expired, the insurance may or may not allow the insured to renew the policy.
Guaranteed Renewal: This form of term life insurance assures that the policy rate will remain constant should the insured decide to renew. The renewed policy may be of equal or lesser value than the policy previously issued.
Permanent Life Insurance: Permanent life insurance is a form of insurance that remains in force until the insured’s demise. Permanent life insurance offers level rates throughout the life of the policyholder and also has a savings component which some financial experts call a “forced savings account.”
A portion of the premium goes toward the payout while a percentage also goes to into an account where they insured can withdraw funds in a pinch. Policyholders can cash in their policies or borrow against it if necessary. This gain is tax deferred with proceeds being tax deductible to your beneficiaries. Permanent insurance is usually an option employed by the wealthy. For the average families, the added expense of the premium, forced savings and various fees and commissions often make this a less attractive insurance option. There are four typical types of permanent life insurance, the most common is known as whole life insurance.
Universal Life Insurance: This type of policy offers insurance along with a savings component. The savings component also can accrue interest, which can also be tied to stocks and bonds.
Limited pay: A limited pay policy has a set premium that is paid over a specific period of time, but then no further premium is due once the timeframe has ended. Most limited pay policies range for over time periods of 10-20 years.
Endowment: The endowment form of life insurance involves the cash value component equaling the death benefit by a certain age. Endowment forms of insurance offer a payout at specific ages, even if the insured does not die.
Accidental Death and Dismemberment: This type of insurance only pays out should the insured die as a result of an accident. According to insurance experts, very few AD&D policies ever pay out, mostly because the type of accident incurred is excluded from the policy, or the policy isn’t continued between the time after the accident and date of death.
With so many options, it can be difficult to select a life insurance policy that’s a good fit for your finances and your family. Your best bet is to speak with a financial advisor. Have a frank discussion about your finances and the needs of your family to help determine which insurance option is the best value and coverage. Be careful to review all of the fine print – including commissions and surcharges – to make absolutely certain that the bulk of your benefit will be going directly to those who you love.
Liam Murphy consults for an insurance company and provides
life insurance quotes for many options available to families planning for their loved ones.
