The Key to Buying Life Insurance

The key to buying life insurance is evaluating the options. Choosing between term and permanent life insurance involves understanding what affects the cost of the premiums paid for the policy. Term life is temporary insurance while permanent insurance is in place for as long as the insured is alive. Factors like age, sex and health status of the insured will be considered when an insurance company quotes a policy. All factors being equal, term insurance is usually less expensive than permanent insurance. The exception to this is a term policy purchased later in life without having a previous policy in place.

Another key to buying life insurance is consideration of suitability and risk tolerance. Permanent policies have an investment component that might not be suitable for people who do not want additional investment risk. While the earnings credited to a permanent policy grow tax deferred and can be used to save additional money for retirement, some people prefer term insurance because it is pure insurance. Either way, understanding the differences among the several types of policy is key.

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The Key to Buying Permanent Life Insurance

Whole life insurance is the most popular type of permanent life insurance. A whole life policy remains in force for the individual's “whole” life, provided the premiums are paid as outlined in the policy. Whole life insurance has a cash-building investment component that grows tax-deferred for the life of the policy. Whole life is part insurance product and part investment product. A part of the premium paid each month or each year is applied toward the cost of insuring the policy owner and part is applied toward the investment account.

Premiums paid for a whole life policy are typically higher than the premiums due on a term policy. Whole life insurance, however, can actually be less expensive than term insurance as the insured gets older.

Most people will have a number of options from which to choose when determining which whole life policy best suits their needs. A participating whole life policy allows the policy owner to get a dividend check from the insurance company based on its quarterly or annual earnings. A policy that has a level premium ensures that premiums remain level throughout the policy. A single premium policy is purchased with a lump sum payment. This is the most popular policy for estate planning purposes.

A universal life insurance policy is also permanent. Like other kinds of permanent life insurance, universal policies remain in effect as long as premiums are paid when due. In addition, like all permanent life insurance policies, some of the premium is applied to the cost of insuring the policy owner and some is credited to the investment account. The three main types of universal life insurance are: Fixed, variable and indexed. All three types of policies involve at least some market participation.

A fixed universal life policy pays interest that is fixed for as long as the policy is in force. Whether the interest rates that are set by the Federal Reserve are adjusted up or down, or whether the Dow or S&P go up or down, the earnings credited to the account remain fixed. Some life insurance companies guarantee a rate below which earnings cannot fall. The interest credited to a variable universal life policy fluctuates based on what happens in the stock and bond markets.

An indexed universal policy credits an amount of interest that is based on the gain of a market index, usually the S&P 500.

One big advantage of a universal life insurance policy is that the policy owner can vary the premium. Should his or her financial situation change or become uncertain, he or she can pay a lower premium and adjust the premium schedule. He or she can also elect to deduct the premiums from the cash account of the policy.

The Key to Buying Term Life Insurance

Most people looking to find the best term insurance begin by looking for a policy that costs the least. The key to buying the best term insurance rate most often depends on the length of the term and the amount of the death benefit that will be paid to the beneficiary or beneficiaries upon the death of the policy owner.

The best term length and amount of the death benefit will vary among families. The best policy for a 52-year-old woman with a husband, a 15-year-old daughter and a high mortgage payment each month might be a length of 20 years. A 20-year term could be long enough to cover her daughter’s college expenses and the remaining mortgage payments. And, the death benefit might also be high enough to ensure that survivors do not experience a drop in their standard of living once one income is lost.

In addition to choosing the proper term and death benefit, another key to buying life insurance is to understand risk factors such as career and lifestyle choices. These also affect the amount of the premium. Term life insurance companies will always evaluate the risks, along with the type of policy chosen, so that the amount of the premium accurately reflects the risk of issuing the policy.

The key to buying term life insurance is the selection of the most appropriate term and death benefit while making sure that the policy suits the policyholder's needs. Eliminating as many risk factors as possible will also go a long way toward reducing costs.

Using the Internet as the Key to Buying Affordable Life Insurance

Competition among life insurance companies has increased significantly in recent years. Therefore, term life insurance policies have become even more affordable. One final key to buying life insurance is to search the Internet and use one of the many calculators available to help determine the best policy with the lowest cost. Those in need of life insurance can not only find competitive rates online, they can also find experts who can help them to determine which policy provides the best protection.

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