How to Choose a Life Insurance Policy

A life insurance policy is vital to the financial protection of your family. When a family member passes away, financial tumult can ensue. Learning solid tips on choosing a life insurance policy is a wise start to beginning the process.

Aside from the emotional difficulty associated with grieving, when a family’s income, or even a significant portion of their income, is suddenly gone along with the parent or spouse who was responsible for earning it.

Understanding life insurance policy types as well as their particular functions and in what situations they may work best are very useful sets of knowledge to possess when shopping for coverage. Throughout your life your needs for coverage may change along with your life situation, from when you need to protect a young and growing family to when you simply need burial costs. Of course, how to choose a life insurance policy also incorporates selecting the right carrier as well.

Types of Life Insurance Policies

Buying a life insurance policy is largely dictated by your life situation at any given point in your life. Having dependents, being the only breadwinner in a household, and generally being the source of income for a family makes them extremely vulnerable should something happen to you where you can no longer provide for them. Having a large life insurance policy to not only take care of debt and burial expenses, but provide for money with which to live until some other source of income can be arranged is nothing less than a lifeline and may in some instance provide money for college tuition and other large expenses. However, if you are single and have no family, you do not likely need a life insurance policy at all.

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How to choose a life insurance policy also takes into consideration the different types of life insurance policies available to you. Four of the most well-known types of life insurance policies that you may purchase from a life insurance company include:

  • Whole life.
  • Term life.
  • Variable life.
  • Universal life.

Understanding Life Insurance Policy Types

A whole life policy provides both a cash value as well as a death benefit, but it is typically much more expensive to carry than the other types of life insurance policies available to you. This is true often because of the enormous commissions due to the insurance agents. These types of policies have premiums that remain the same amount until you pay off the entire policy. The policy remains in force until the event of your death, even after you complete paying off all the premium installments.

A variable life insurance policy is another permanent type of policy that utilizes a cash reserve that it accumulates to invest in other vehicles which are normally offered by the life insurance company selling you the policy. Universal life insurance policies allow you to vary the amount of premiums you pay while still providing a permanent life insurance policy. These policies enable this by allowing you to use part of the cash you accumulate in the policy to offset the amount of the premium you must pay. In addition to this feature, a universal life policy allows you to alter the amount of the death benefit to which you are entitled. Because of this particular feature the administrative fees associated with maintaining this type of policy are considerably higher than other options for policies available on the insurance market.

How to Pick the Right Life Insurance Company

Besides being able to select the right insurance policy, picking the right life insurance company is also equally important since they will be the people with whom you rely on making sure any benefits are paid out as well as maintaining your policy. The following are some tips on choosing the right insurance company:

  • Independent agent vs. insurance company – When it comes down to how to choose a life insurance policy, using an independent agent can work to your advantage. While a life insurance company attempts to sell you its products exclusively, an independent agent is often likely to show you a range of products from various companies, any number of which may be suitable. It then comes down to making the choice for the best one.
  • Company history and reputation – You should do your due diligence on any prospective insurance companies before purchasing a life insurance policy with them. Because of the delicate nature of this sort of arrangement, you will want to check on a variety of things such as:
    • The length of time they have been in business.
    • The states in which they sell their insurance products.
    • Their company mission statement and stated values.
    • Who leads the company.
    • Their community involvement, if any.
    • The sorts of products they sell.
    • Their financial position.
  • Know your insurance company’s financial strength – When the time comes to cash in your policy, or submit a claim for benefits, you do not want to receive a denial because the company is in difficult financial straits. Most insurance companies register with independent ratings agencies. You may check with these agencies to understand how each agency can assist you in managing your end of life arrangements.
  • Coverage – You want to ensure that whatever life insurance policy you feel you need is offered by the company from which you want to purchase it. There may be some companies that only offer certain types of policies and not others.
  • Price – In order to pick the right life insurance company, you will need to make sure they offer the products best suited to you and your family at prices that align properly with your budget constraints. Simply calling around to various companies and/or using an independent insurance agent to do the comparison shopping for you should be sufficient for you to figure out which companies fit your budget.
  • Ease of doing business – You may prefer a company that makes it easy to do business with them. They may offer such conveniences and features as:
    • Online bill pay.
    • 24/7 customer service.
    • Social media.
    • Easy policy changes.
    • Billing support.
  • Discounts – Some insurance companies may offer discounts to customers for a variety of reasons including having multiple policies with them for various other needs (e.g. auto insurance, homeowners insurance, renters insurance, etc.).
  • Referrals – This may be one of the most powerful tools you can use to select a life insurance policy By contacting those you know and trust to relate their experiences and satisfaction, you may make your search exponentially easier.

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