The choices offered by various life insurance plans can get very confusing, and the verbiage of plans makes it really difficult to understand them at first glance. It gets very hard to figure out where to start from.
You must start with some seemingly easy sounding questions: Do you even need life insurance, to begin with? What/Who do you need life insurance for? Your detailed responses to these questions will help you in deciding what kind of life insurance you should purchase.
Once you have decided that you need life insurance, the next step is to get educated about various kinds of life insurance plans so that you can pick the right life insurance plan for yourself.
Here are a few factors to help you decide:
How much coverage would you need?
The amount of coverage you need depends on factors such as your other sources of income, your debts, number of dependents and your lifestyle. A general guideline is to get a life insurance policy that is worth between 5 and 10 times your annual income. Consider consulting a professional financial planner to get to an accurate number.
Types of life insurance plans available
Various types of life insurance policies are available – some of which are whole life, variable life, universal life and term life.
Whole life insurance provides cash value in addition to death benefit but is more expensive compared to other forms of life insurance. In traditional whole life policies, your premiums do not change during payment term. The life insurance policy stays in effect till you die, even after all the premiums have been paid.
Variable life insurance policy is a kind of permanent life insurance. It builds a cash reserve that you invest in the choices made available to you by the insurance company. The value of the cash reserve varies with the value of the underlying investments.
Universal life insurance policies are another form of permanent life insurance that allows you to vary your premium amount, by using a portion of your accumulated earnings to pay for part of the premium. You are also allowed to vary the death benefit amount.
Some experts recommend that if you are young and do not have a life-threatening condition, you should choose term insurance which offers a death benefit with no cash value.
Costs involved in getting life insurance
The cheapest insurance is the one you can get through your employer. Other life insurance plans vary in cost based on the cover you want, the type of policy, underwriting practices, and the commissions paid to the agent by the insurance company. The costs also depend on your life expectancy. High-risk people such as smokers, overweight folks and people with dangerous hobbies or occupation will need to pay more.
Life insurance policies typically have hidden costs, like commissions and fees. You may not discover them till after you have purchased the insurance policy.
When deciding on the right life insurance plan for yourself, use all resources at your disposal to learn more about life insurance plan basics, work with a broker you can trust, then get the recommendations evaluated by an independent insurance advisor who is not affiliated to any insurance company.