How To Pick A Life Insurance Company
Life insurance will take care of anyone you want after death. It doesn't even have to be family, it can be anyone that you specify, and there is no limit. There are many different types of insurances, so knowing them will enable you to make the best decision for your needs.
Term Life Insurance (or Assurance)
Think of term as short for temporary. Term life insurance is temporary insurance that lasts for a specified number of years. Unless your insurance is forced to kick in during those years, you receive no benefits after those years are over (except for the peace of mind all those years). However, term insurance is the least expensive form of insurance.
Sometimes with term life assurance you have the choice to pay an additional premium if you want to insure yourself for chronic or acute illnesses. Be sure you know the list of those illnesses covered.
Guaranteed Premiums
Guaranteed premiums in term life insurance are premiums that are guaranteed to stay at the same cost all throughout the duration of the term no matter what. Although it costs a little more to have guaranteed premiums, guaranteed premiums are recommended to avoid premium increases, especially if your term is for 10 years or longer.
Reviewable Premiums
Reviewable premiums are premiums that can be reviewed every so often and are subject to change. Your premiums could therefore increase over time.
Level Term Assurance
Level term assurance guarantees that the amount paid upon death will stay the same (or, level) during the entire length of the term (temporary) policy.
Decreasing Term Assurance
Decreasing term assurance is a term policy that decreases its payout over time. This type of insurance is often used to pay off large loans. Since loan amounts decrease over the years, the payoff amount decreases as well to match what will be needed. Premiums for this type of insurance tend to be lower compared to other types of insurances, but the payments will generally stay the same during the entire length of the policy even though the payoff amount will decrease over time.
Convertible Term Assurance
Convertible term assurance gives you the ability to convert your term insurance into a whole (permanent) insurance once your term is over. Medical exams are not required but your payments could increase.
Endowment Life Assurance
Endowment life assurance is used for two different things (to be well endowed). It is used to pay off things upon death (usually large loans), and therefore, most are used as a decreasing term assurance (since loans also decrease over time). However, there is one extra benefit endowment life assurance has that decreasing term assurance does not offer, and that is part of the premium money goes to investments, and whatever extra has been acquired from those investments over the years become your life insurance for your loved ones. Therefore, endowment life assurance is a savings plan to pay off your loans with a life insurance also, but the payout from the life insurance part of it will be unknown.
Whole Life Insurance (or Assurance)
Think of whole as your whole entire life. Whole Life Insurance will cover you for the rest of your life, or until you reach 100 years of age, which ever comes first. The payment upon death will generally be more than what your policy states because part of the premiums go toward investments. Although you have no say how that money is invested, there are other options (at a cost) to bypass that. The invested money will be tax free however, but the premiums will be much higher since payment is almost a certainty. The amounts, however, will never change. Once it is set, it is set for life. So no matter how sick you get, your payments and coverage amount will remain the same.
Universal Life
Think of universal life as the ability for your money to be invested much more universally (in a much wider range of options). Universal Life is a whole life insurance plan purchased with the ability of having your money invested in other options such as money market accounts that will incur much more money for you than low risk accounts.
Variable Life
Variable life allows you to have even more control over your investments than universal life in a whole life insurance plan. You can invest your money yourself however you wish. In other words, you have many more variables from which to choose from when it comes to investing your money.
Limited Payment Whole Life
With limited payment whole life, you are purchasing a whole life insurance plan with limited payments. Limited (or less) payments in this case mean that the number of times you pay is less because you pay off your policy early. Because you are purchasing a whole life insurance plan, part of your payments will still go toward investments. The only difference is that your payments are higher so that you can pay off your policy early, but then once your policy is paid off, you can enjoy insurance coverage for the rest of your life (whole life) without making any more payments. The only disadvantage to this system is if death occurred right after making the last final payments because then, obviously, the value for your money would not be as good. However, the value for your money that you gain once your policy is paid off increases quite rapidly. The biggest advantage to this system is you will not have to worry about making payments in your older age, if money becomes tight later on in life it will be a life saver because you will still be insured with no payments. It will essentially help you to have more money during your retirement years.
Continuous Premium Whole Life
Continuous premium whole life is the whole life insurance plan purchased with a continuous payment plan, or, in other words, the payments are continuous until death or until 100 years of age. The value for your money takes longer to incur with this system than with the limited payment plan (paying it off early), but your payments will be much less.
Life Insurance No Medical
Life insurance no medical is just how it sounds, life insurance minus the medical. In other words, getting life insurance without having the medical exam, that is, if you qualify (you are young and healthy).
Deposit Term Insurance
Deposit term insurance is a level term insurance no medical plan that charges a lot more in payments the first year (in other words, making deposits), but then the extra money paid the first year goes into investments, which is then used as credit toward lowering the rest of your payments for all the following years to come that your term policy covers. In other words, you are just simply paying off a small part of your policy early in the first year so you can enjoy lower payments in all the years to follow.
Industrial Life Policy
Industrial Life Policy is also a level term insurance no medical pay-plan that grossly lowers the payment amount, but payments are made much more often, many times weekly. The industrial life policy was originally put into place to help industrial workers in factories pay for their life insurance by calculating how much they could afford weekly, then getting the attached benefits.
Credit Life Insurance
Credit life insurance is yet another option within a term insurance no medical plan that is geared toward paying off all your loans upon death (such as high credit card debt). So, if you have outstanding loans that will need to be paid off, credit life insurance will guarantee the payoff of those loans. Credit life insurance is usually used as a decreasing term type of insurance since amounts of loans also tend to decrease overtime. However, you can also use credit life insurance as a level term type of insurance as well to guarantee the same large payout upon death (not having the payout decrease over time).
Family Income Benefit
The family income benefit allows for a payout in the form of income for the family rather than one big lump sum all at once. The length of the term is decided from the start, then however many more years (or months) your term is still good for after death is how long your family will get the income for. There is an extra option that will enable your income to your family to increase overtime (to help with extra expenses that come up in future times). However, this option must be set from the start of the term. The money that comes in as income is also tax free and one of the very least expensive forms of life insurance.
Which Is Best For Me, Term Or Whole?
If you are a young family tied up with many bills to pay, etc, than term life insurance is recommended. The payments will be much lower, thus freeing up extra money to invest how you wish. Your coverage will be good enough for what you would need (most likely). Whole life insurance is used more for those who are older and who need extra money to cover for the taxes on their estate after they are gone. However, you do get more value for your cash paid with whole life insurance, (since the payoff is almost inevitable) so if you don't mind paying the high premiums, than it can be a good choice for anyone since it ensures coverage in the end. With term you do not get any paid benefits unless death occurs during the duration of your term.
Should I Get Income Or Lump Sum?
Again, if you are a young family that will need a good continuous income to survive, than getting an income benefit may be best for you. In order to maintain a steady income with a lump sum, one would have to figure out the best way to invest that money, which could be tricky. However, if you have large debts that would need to be paid off right away upon death, than a lump sum would make more sense.
Traditional and Interest-Adjusted Net Cost Methods
The traditional and interest-adjusted net cost methods are terms you may hear and will want to be familiar with. They are methods used for analyzing the overall cost weighted against the benefits of each insurances. In summary, the traditional net cost method is a traditional way of taking into account all costs and benefits in the form of calculations to help you compare various insurances to determine which would be most beneficial for you. The interest-adjusted net cost method uses similar calculations only it also takes interest into account as well. Both methods are highly discouraged for use however because of several factors that are impossible to predict (such as interest rates and the value amount your money will accumulate to over time). The calculations do not even take into consideration when you are able to pay off your policy (which is one of the biggest factors in determining cash value) and therefore, (among many other factors), the outcome used for comparison would only be an estimate that could turn out to be totally inaccurate anyway.
How Can I Save Money On My Life Insurance?
There are many ways to save money. First of all, do not lie on any of your forms. It could come back to haunt you. Remember, your insurance will only cover the person on the form.
Getting The Coverage You Need
Also, be sure to get the coverage your loved ones will need, or else why get it at all? Know what income they will need to be able to sustain themselves, and make sure they will have the means to achieve that. Losses that dependents cannot replace (such as your income) should be the only determining factors for replacement through life insurance.
Know Your Policy
Knowing your policy is essential too. Be sure to avoid those policies that will only cover you for specific types of deaths. You will get more bang for your buck to pay a little more to be covered for any type of death.
Group Term Insurances
Any term life insurance you can get through your company will be cheaper than getting it yourself, generally because of group discounts and the premiums being tax-deductible. You probably won't have a medical exam either with a group term, so if you are unhealthy, it is an especially good deal. However, be sure that your policy will still stay intact if you should ever leave the company. Many policies will allow you to switch over to an individual plan, but one must check to be sure.
Joint Life Assurance Cover
If you and your spouse need coverage (for example, one for income and the other one for constant child care costs, which can run extremely expensive), then instead of getting two separate coverages, it is usually more inexpensive to get a joint coverage for both. With a joint coverage, both are covered continuously so if one dies, the other gets the benefits.
Taxes
Of course, making sure your payouts will be tax free is very important. Equally important is making sure that if your payout is added to your overall estate, it doesn't cause your inheritance tax limit to be over the limit. You will only be tax free for so much. Anything more than that will be taxed unless you protect yourself against it. One way to protect yourself is to write your policy in Trust (enabling your payout to NOT be associated with the rest of your estate).
Extra Benefit Options For Your Life Insurance
There are many extra added options that one can choose from no matter which type of life insurance is chosen. These added options are present to enable people to better tailor their life insurance plan for their own personal needs.
Accidental Death (or Double Indemnity)
Accidental death (or double indemnity) is an added option that pays twice (or double) the payout if death is caused by specific accidents (accidents listed in the plan). This can be very beneficial since accidents, many times, calls for much more expensive costs and therefore, would be very nice to have twice as much payout upon death to help cover (or re-cover) those expenses paid.
Premium Waiver
A premium waiver is another option that will waive your premiums should something happen to you causing your inability to work. It will usually pay your premiums for 6 months or less, depending on how severe your disability.
Guaranteed Insurability
Guaranteed insurability is yet another option that will guarantee you will be insured when additional life insurance is purchased no matter what your current state of health is. You will not need to qualify for anything.
Disability Income Rider
The disability income rider option is an option that enables you to ride on waived premiums for longer than 6 months due to disability. There are also added features to this that many policies offer that will pay you an income monthly as well. So, with the disability income rider, you can ride on an income and waived premiums for longer than 6 months if your disability is severe enough to require it.
Index-Linked Policies
Although your needs given your situation may change in many years to come, there is one thing that is guaranteed to change, and that is the economy. That is where index-linked policies come into play. Your policy is linked up to the Retail Price Index and therefore changes accordingly (to match the Retail Price Index). Therefore, your premium amounts and payout amount will match the Retail Price Index. Linking may not be automatic, each insurance company could do linking differently so it is important to check on how they link.
There are a lot of options, of which only the basics have been covered, so explore your policy carefully making note of ALL your possible options. Remember, no matter which insurances or options you choose, the longer you wait, the older you get, and thus, the more expensive your life insurance will be.
