5 Key Points for Choosing a Life Insurance Policy
Choosing the right life insurance policy means striking a balance between what you're able to pay today and what you want to leave for your loved ones later down the line. While price is a big factor, there are other important factors to consider when choosing the right policy for you.
1. Policy Type
Life insurance types typically fall into two broad categories: term and whole.
Term Life Insurance
Term life insurance policies offer coverage for a certain period of time, such as 5, 10, 15, or 20+ years. During this period, you pay a premium, and your beneficiaries will receive a death benefit should you die. At the end of the specified period (and if you do not convert or renew the policy), you stop paying the premium and are no longer covered by the policy.
Whole Life Insurance
Considered more of an investment, whole life insurance covers you from the day you sign up until you die—there is no end date. Over time, your whole life insurance policy builds a cash value, which you can cash out or use as a loan once it's reached the date of maturity.
Term life insurance is typically more affordable. For those who just wish to ensure that there's a policy in place to cover their children's needs until they go to college, a term life policy may be all that's required. For others who wish to make a serious investment and are able to pay more per month, whole life insurance could be beneficial. As you consider various life insurance policies, deciding which type of policy is right for your unique circumstances should be one of the first steps.
2. Tailored Pricing
Life insurance policy prices vary greatly, and the price is based on the policy type, the provider, and your unique circumstances. When you're comparing prices and shopping around, it's important to look for a policy that takes into consideration factors associated with your unique circumstances; for example, your health, smoking habits, travel history, and other habits or indicators. The more in-depth the policy information is about these types of factors, the more tailored it will be to you—meaning you could be eligible for discounts based on your healthy lifestyle choices or positive habits. Policies that offer more generic or lenient vetting may make up for it with higher premiums.
Having an affordable policy is important for several reasons. The purpose of purchasing life insurance is to provide financial security for your loved ones after your passing. That shouldn't mean, however, that you're depriving aspects of your financial life today to maintain your policy. Find a policy that will fit well within your budget—even when times get tough.
When faced with financial turmoil (job loss, divorce, etc.), a life insurance policy may be one of the first things to go. Keeping it affordable from the start may help avoid this situation. Additionally, if you cancel or lapse on your policy, you may face an uphill battle getting another one, especially if your health has declined in any way.
4. Option to Convert Policy
Imagine that you're in the final year or two of your term life insurance policy and you'd like to continue with the same policy. Some term life insurance policies offer a conversion feature, which allows conversion of the policy into a permanent one.
A major advantage of this feature is that it helps you avoid having to go back to the marketplace and start your policy search all over again. It's worth noting that if you initially purchased the policy 20 or 30 years ago, you may have developed health conditions that could make it harder to obtain a new policy.
5. Living Benefits
It's important to find a life insurance policy that can offer you certain benefits while you're still living. Some policies allow you to withdraw premiums that you've already paid to cover medical expenses (e.g., care, cancer treatment).
While this option could save you and your loved ones from financial turmoil in the event you fall ill or become incapacitated, note that any funds you withdraw from your policy will reduce the amount your beneficiaries receive.
You want to know your loved ones are going to be well-cared for in the event that you pass away unexpectedly. Taking the extra time now to look at your options and choose something that's right for you can make a big difference in how your policy benefits you and your family later down the line. If you're working with an agent or financial professional, ask them to help you thoroughly review your options.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.