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Tips For Comparing Life Insurance

A man signing up for a Life Insurance policy.

Everyone understands the importance of life insurance, but not everybody takes action to avoid a financial disaster for their loved ones in the worst-case scenario. Since you are reading this article, you are already ahead of a lot of people as you are interested in buying life insurance.

Life insurance is complex. There are many types of policies, and you need someone to guide you and help you make the right choice. This article is focused on helping you compare life insurance policies and how to choose the best one for your needs.

Basics of life insurance

In simple terms, life insurance means that your loved ones get the policy amount in case of your death. The life insurance money can be used for any purpose by the beneficiary. You need to pay a premium to keep the life insurance policy alive. This premium can be paid at various intervals, including annual, semiannual, quarterly or monthly.

Whole life insurance policies cover most scenarios, they are not applicable in all events. For instance, the insurance policy may have a clause where they will not pay out in case the death happens as a result of a high-risk job or hobby.

The life insurance proceeds can be used for a variety of purposes, including estate taxes, living expenses of the beneficiaries, funeral expenses or other purposes. Also, some life insurance policies allow you to get a part of the coverage amount even when the insured is alive under specific circumstances.

Life insurance types

There are two main types of life insurance policies: term life and permanent.

Term life insurance is what the name implies. It provides life insurance cover for a specific term which could be just one year or more than 25 years. It needs to be renewed every year. You do not get any money back once the policy expires as there is no investment component.

Permanent life insurance policy is available in various subtypes, including universal, whole and burial, among others.

A whole life insurance policy combines insurance and investment. The investment component keeps growing over the term of the policy. The insured gets this investment component back along with the promised returns once the policy term expires. A whole life policy typically has a fixed premium amount.

The universal insurance policy also combines investment and death benefits. It offers flexibility in the premium amount. If you reduce the premium amount, the accumulated cash value of the policy gets reduced.

There is also the final expense policy, where a small sum of money is provided to the beneficiaries to take care of funeral and burial expenses. This type of policy also does not come with a cash value.

How to Compare Life Insurance

There are dozens of insurance providers, and everybody claims to be the best. However, there are certain things you should seriously consider before choosing a particular insurance provider and an insurance policy. It is also highly recommended to use a life insurance cost calculator to get a better picture of the cost based on your needs. Here are a few tips on comparing life insurance:

Coverage amount

The first thing you need to decide is the amount of coverage you need. You can buy policies for as low as $5000 or more than $1 million. There is no standard coverage amount as everybody has different requirements. It is typically recommended to choose a life insurance coverage that is 7 to 10 times your annual income.

One of the ways you can decide on the coverage amount is to use a popular life insurance calculator. These calculators require you to provide certain data regarding your age, expenses, income and certain other things to help you come up with the right coverage amount.

Term length

It refers to the period of time for which the policy is alive. Longer terms cost more, but you will save money eventually. Keep in mind that insurance premiums rise with age. If you buy a life insurance policy at the age of 45, you will pay higher insurance as compared to buying insurance at the age of 30.

Insurance provider

It is an unfortunate fact that not every insurance company is honest when handling claims. They will not honour every claim. On top of that, not everybody is known for customer service or transparency.

When you are comparing insurance providers, make sure you choose a company that is known for excellent customer service, a wide range of insurance policies, complete transparency and an excellent approval rate.

Read the fine print

Before buying a policy, you would also like to read the policy document carefully. Check the premium you are required to pay each year and the term of the insurance policy. Carefully go through the guaranteed benefits and if there are any exclusions or conditions or whether any of the benefits are subject to change.

Flexibility

Many service providers allow buyers to add a wide range of riders to the main, which gives them specific benefits in certain events. For instance, some policies allow a lump sum payout even when the insured person is alive in case they are diagnosed with a terminal illness.

Similarly, there are other riders you can add to enhance benefits. Certain policy riders allow you to add more people to your policy at a certain cost.

Premium discounts

Some providers offer a considerable discount for insurance coverage above a certain amount. It might be possible for you to get coverage for $300,000 at a lower price as compared to a policy for $250,000, but you will need to shop around to find such a deal.

Final Thoughts

Overall, there are hundreds of types of insurance policies, and a few dozen reputed insurance providers. You should first decide on the amount of coverage, and a life insurance calculator can help you with that.

Once you have decided on the amount of coverage, compare various insurance providers on the basis of available policies, available riders, terms of the policy, customer service, general reputation, approval rate and other such parameters. It will help you with choosing the right insurance policy at the right price.

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