Life Insurance Basics for Consumers

life insurance

Shopping for life insurance can be overwhelming.  The sheer number of options and unfamiliar terms can confuse even the savvy consumer.  An understanding of a few key concepts and terms can help you find the right type of policy for your needs at a rate that fits your budget.  Let’s take a look at some life insurance basics and explore some ways you can keep your premiums down.

Types of Coverage

There are two basic types of life insurance policies, term policies, and whole-life policies.  Whole-life policies are guaranteed to pay out at the time of your death.  While you’re alive, a portion of your monthly premium cost goes toward investments made by the insurer; these investments grow in value over time.  Many people in the insurance industry like to describe whole-life policies as having the best qualities of both an insurance policy and an investment fund.

When you purchase a whole-life policy, the policy’s cash value continues to build throughout your lifetime.  Policyholders are able to borrow against this cash value on a tax-free basis.  Another benefit of a whole-life policy is it is a fixed cost.  The premium price usually does not change during the life of the policy.

Term insurance policies are quite different than their whole-life counterparts.  A term policy is designed to last for a set period of time, which could be as short as five years or as long as 30 years.  A payout only occurs if the policyholder dies during the term of the policy.  These policies do not accumulate any cash value and no portion of the premium goes toward investments.  Term insurance is often recommended for young, healthy people since the premiums tend to be lower than a whole-life policy.

Shopping Strategies for the Smart Consumer

If you’ve met with another insurance agent or two already, you may have left feeling pressured to purchase a whole-life policy.  It’s no surprise that most agents aggressively push whole-life insurance.  Agents can receive sizable commissions for selling these policies.  Whole-life insurance can be a good fit in certain situations, but it’s not always the right choice.  Term life insurance is often the smarter choice for many individuals.  If you’re able to lock in a term policy at a young age, this type of insurance can be a terrific bargain.

You may have been swayed by another insurance agent’s sales pitch for a whole-life policy.  Proponents of these policies often highlight the fact that they have a guaranteed payout.  They may be quick to also mention that you can borrow against the policy’s accumulated cash value without any tax impact.  Those arguments have merit, but they fail to address the high fees that are common with whole-life policies.  They may also neglect to mention the hefty fees you’ll encounter if you try to cancel your policy at any point.

If you’re looking for a tax-free way to save some money, there are many alternatives to a whole-life insurance policy.  Retirement plans like 401(k)s and IRAs offer the same tax benefits with better rates of return.  These plans also tend to offer more flexibility than whole-life policies.  If you want to get the most bang for your buck, look for a fairly-priced term insurance policy and invest your money in other financial products.

How Much Coverage Do You Need?

If you’ve made the decision to purchase a term policy for yourself, you’ll need to figure out the right term for your needs.  While it’s true that whole-life policies will cover you for your entire life, it may not be necessary to be insured for that many years.  The main purpose of life insurance is to provide for your dependents after your death.  Most people want a policy that stays active until all of their children are grown and independent.  You may also want your coverage to last until your projected retirement date in order to help provide for your surviving spouse.  For most individuals, a term of 20 or 30 years will cover this critical time when a spouse and children would need financial protection.

In addition to choosing a term carefully, you can also help keep insurance costs in check by choosing your amount of coverage wisely.  Since life insurance is designed to take the place of your income in the event of your demise, it’s important to figure out which expenses your dependents would need to cover.  Costs such as mortgage payments and childcare should be included in this calculation.  Striking the right balance is critical.  You don’t want to be under-insured, but you also don’t want to buy more coverage than you need.

Getting Quotes

Once you’ve hammered out the details regarding the type and amount of coverage you want, you can easily locate some deals by shopping around online.  Many major insurers provide online quotes at no cost; in some cases, you can even purchase your policy online.  When you shop around for quotes, be sure to examine each insurance company’s rating.  These ratings, which are determined by companies such as Moody’s and Standard & Poor’s, are based on the ability of the insurer to pay claims.  You may be offered a lower price by a poorly-rated insurer, but the savings don’t usually justify the risk.

Conclusion

Maybe you’re not ready to take on this task on your own and need pressure free guidance?  My best advice is to consult with a trusted insurance agent, like myself, to assist you to find the best coverage at a price you can afford.  Having access to every life insurance carrier in the State of Florida, you can be sure that my team and I can find the best policy to meet all of your families needs.  We work hard every day to ensure our customers get honest information without any pressure to purchase.  Our goal is to earn your business for life by looking out for you the way a family member would.

It’s clear that shopping for life insurance does not have to be intimidating or overwhelming.  Once you understand some of the basic decisions that need to be made, it is easier to figure out exactly what level of coverage meets your needs and still saves money.  Armed with the necessary information, you’ll be able to find the right policy at the right price.  Again, should you have any questions regarding life insurance please do not hesitate to reach out to my team of agents and I as we are ready to provide consultation when making this important decision.

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A Blog offering Tips and helpful navigation to better Insurance coverage in the State of Florida

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