Life insurance is a contract between you and an insurance company. Essentially, in exchange for your premium payments, the insurance company will pay a lump sum known as a death benefit to your beneficiaries after your death.
Your beneficiaries can use the money for whatever purpose they choose. Often this includes paying everyday bills, paying a mortgage or putting a child through college. Having the safety net of life insurance can ensure that your family can stay in their home and pay for the things that you planned for.
There are two primary types of life insurance: term and permanent life. Permanent life insurance such as whole life insurance or universal life insurance can provide lifetime coverage, while term life insurance provides protection for a certain period.
How to Find the Best Life Insurance Policy For You
With the wide variety of life insurance policies available, pinpointing the right one can be a challenge for any buyer. Don’t go it alone when trying to find the best life insurance policy. Financial advisors and experienced life insurance agents have the background to help you make the right decision based on your financial goals and budget.
Look at financial strength ratings.
A strong financial strength rating is more than just peace of mind that the company won’t go out of business decades from now. Insurers with greater financial strength can be less likely to need to increase internal policy costs and premiums in response to challenging financial times.
Ratings are available from agencies such as Standard & Poor’s and AM Best, and are usually found on insurers’ websites.
Select life insurance as part of a larger financial plan.
A financial advisor can explain the best life insurance options in the context of your larger personal financial goals.
Don’t assume insurers offer competitive pricing for everyone.
Life insurance companies want your business, but they all operate from their own playbooks. Premiums can vary wildly and, for cash value policies, cash value growth can be very different among companies and policies.
Be aware that a life insurance quote for a cash value policy may not reflect what you’ll actually end up paying over the years to keep the policy in force.
“Current regulations in some states and for some products permit insurers to ‘quote’ a low premium while charging high costs—without disclosing that you may need to pay additional premiums later in order to avoid a lapse,” warns Barry Flagg, founder of Veralytic.
Insist that cost disclosures for universal life insurance be included in any proposals.
A life insurance quote reflects what you’ll be billed for, but it doesn’t tell you anything about a policy’s internal costs, such as expenses and fees, and the actual cost of insurance that’s charged within the policy.
Be sure to insist that any universal life insurance illustration include the detailed expense pages or policy accounting pages. Products with a low premium quote could have higher internal costs, which can slow your cash value growth.
Figure out if you want life insurance riders
Life insurance companies generally let you add extra coverage to your policy through life insurance riders. These riders can include benefits you can use while you’re alive, such as accelerated death benefits, long-term care, term life conversion and waiver of premium if you become disabled.
Adding a rider may increase the cost of life insurance. If you’re interested in expanding coverage through a life insurance rider, ask your life insurance agent to explain the options.