How to Buy Life Insurance

Life insurance is generally bought by people to replace income that will be lost upon the death of a wage earner. Life insurance also is used to pay funeral expenses and any debts incurred. One of the first things to do when buying life insurance is to decide how much insurance you will need, affordability and the kind of policy you want. Then do some research to compare life insurance company rates by looking into the Surrender Cost Indexes and Net Payment Cost Indexes of similar policies.

Term Life Insurance

Term insurance is protection for a term for a year or more. It is possible to buy term insurance with the term up to 30 years. Term insurance can be renewable for one or more years as well if your health is good. Premiums will be higher for each new term. Term insurance can also be converted to whole life after the term is completed. Premiums for term insurance stay virtually the same throughout the term and have no cash value account. Benefits will be paid only upon your death.

Life Insurance Endowment

An endowment insurance policy will pay a certain amount or income to the policyholder if you live to a specified age. If death comes before that age, benefits will be paid to your beneficiaries. This type of insurance will require higher premiums and a higher cash value, but is the least amount of death protection for the amount of premiums paid.

Whole Life Insurance

Whole life insurance continues for as long as the policyholder lives. It’s also called straight life or ordinary life insurance and you will pay the same premiums for as long as you live. Premiums are generally several times higher than premiums you will normally pay for other types of insurance like term, but are smaller than premiums paid if you kept renewing term insurance.

Whole life insurance carries a cash value, which means you can cash the insurance policy in for the cash value when you stop paying premiums. The policyholder can borrow the cash in a whole life insurance policy with the interest listed on your policy. Money still owed on a loan is deducted from the benefits upon your death or from the cash out when you stop paying premiums.

Variable Life Insurance

Variable life insurance is a type of whole life insurance in that it provides protection for you for as long as you live along with death benefits to your beneficiary. The value of variable life insurance goes up and down depending on the performance of the investment portion of the policy, although most will guarantee that the death benefit will not fall below a particular minimum. Due to the investment risks, variable life insurance is a securities contract and regulated as such under the Federal Securities Laws and is sold with a prospectus.

Universal Life Insurance

Universal life insurance is another variation of whole life insurance in that the insurance part is separated from the investment portion. Investments are made into money market funds. Cash value of the policy is an accumulation fund with investment incomes credited to the fund and pays the death benefit. Generally there is a minimum interest rate that is guaranteed and you are guaranteed a minimal return on the cash part of the policy.

How to buy life insurance

You need to be patient while buying life insurance. There is no need to take a quick decision that you may regret letter. The first thing you need to do is to meet a life insurance agent and understand the different kinds of policies available. You should treat it like a quick primer on how to buy life insurance.

After this, you need to visit the websites of major insurance companies to find out the different policies they offer and the premiums they charge. Make a comparison, and decide which one is best for you.

You can go for term life insurance which offers coverage for a specified time period or cash value life insurance which is a combination of death benefit with a cash value component. Term life insurance policies are quite affordable but they are temporary to some extent. Some of these policies can be converted into permanent ones.

The periods of term life insurance normally range from 1 to 30 years. Policies should be chosen according to personal requirements. If a person wants to buy a policy to protect his 8 year-old twins till they pass out of college, he should take a policy with at least a 15 year term.

The coverage amount depends on factors like the money required by your survivors, the money you have and owe, and the insurance policies that you may have bought earlier. Married couples should have policies for both, especially if both are earning.

You also need to look at your capacity to pay premium. The premium depends on a lot of risk factors like your age, health, use of tobacco, family health history and the type of life insurance, that determine how much you have to pay. In term insurance policies, the premium may increase as the term passes.

You should also compare policies that are similar in nature and size and those that are offered by good companies. The rating of the company should be good; it should be financially strong and have the ability to pay claims.

After deciding upon the policy and the company, complete the application form with all the relevant information. There will usually be a medical test, sponsored by the company. The company will assess your application and the medical test and would decide if you can be issued a life insurance policy.

The life insurance contract should be read thoroughly before signing. It gives you details about the policy provisions, amount of benefit, premiums and premium guarantee period. You should reject the policy if some clauses don’t suit you.