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Navigating the Life Insurance Maze: What Do I Need?

Nobody likes to think about death…especially their own – the sadness and pain that a death inevitably causes; and most importantly, the financial burden on those you are leaving behind. Add to that the sheer number of choices available for those looking for a life insurance policy, and it’s no wonder that so many people wind up in the fetal position with their hands over their eyes – if I pretend that this doesn’t exist, it’ll eventually go away, right? Unfortunately, sticking your head in the sand and ignoring the issue does not allow anyone to escape their own mortality. Although life insurance isn’t a topic that anyone likes to discuss, it is an important financial tool to guard against risk and we are here to help you decide what type of policy is best for you and your individual circumstances.  Here is a breakdown of what you need to know to make an educated decision on your life insurance policy:

Term Life
We’ve all heard the phrase “term life insurance” but do you really know what it means? This is one of the simplest options for life insurance coverage, as it provides a set amount of money to a named beneficiary after a death occurs within a period of time that is set forth in the policy.

As the name suggests, this life insurance policy does not carry forward for a lifetime. The plan has a set term, or period of time when a beneficiary can collect funds under the policy. There are a few options with regards to the term that you can choose: 5 year and 20 year terms are the most common. Depending on your life circumstances and reasons for seeking out coverage, the appropriate amount of time may vary. An example of someone who may benefit from a 20 year term life insurance policy would be a young family: the parents are still relatively young, and there are young children involved. In the event of an accident or sudden illness that results in death during the term of the policy, the beneficiaries of the policy (in this case, the children or surviving spouse) would be entitled to the insurance money.  An older couple with grown children and perhaps deteriorating health may determine that a 5 year term option is best to protect their survivors financially.

Term life insurance policies are fairly straightforward, and do not contain any kind of investment options. They are also generally the least expensive option and the premiums tend to reflect the term chosen, making it attractive for young individuals and families who are just starting out and taking out a life insurance policy as a ‘precaution.’

Whole Life
A whole life insurance policy is another common option for those seeking coverage. These policies carry forward for the entire life of the policy holder and the beneficiary identified in the policy will receive the stated amount. In addition, whole life policies offer an investment component and guaranteed benefits, as opposed to the term policies that expire after a set amount of time.

Along with the guarantee of payment, whole life insurance providers will put a portion of the premium into an investment. In some cases, the policy holder will receive dividends or other income from the investment of their premiums, but insurance companies vary in how they invest your funds, so it is important to have a firm grasp on where you would like your money to go before choosing a carrier and a policy.

While a whole life insurance policy can be appropriate for just about anyone, it is important that the potential policy holder pay close attention to the verbiage in the policy as well as where your money is being invested. Remember, this policy is meant to last for your entire life! If the word “investment” makes your brain hurt but you still feel like you would benefit most from a whole life policy, you can always have someone you trust review your information and potential policies before signing blindly.

Universal Life
A universal life insurance policy takes components from whole life and term life policies. It carries forward for a lifetime but offers a greater level of flexibility than a whole life policy. Unlike a whole life policy, however, it does not have a guaranteed payment amount.

Universal life policies also contain an investment element, but the insurance company only invests a portion of any funds paid in that exceed the minimum premium. This means that the policy does not have a guaranteed payment amount beyond the stated minimum. The primary benefit of a universal policy is the flexibility, as policy holders can make adjustments as long as the minimum premium is paid.

Variable Life
As if you didn’t have enough to think about, let’s add another type of policy into the mix – a variable life insurance refers to a policy that is similar to the universal life option, but with even more investment options. The insurance provider offers several investment opportunities-including stock investments-which could potentially increase the amount that loved ones will receive when a policy holder dies.

Variable life insurance is a permanent policy. It carries forward for a lifetime and will pay out to the beneficiary or beneficiaries as stated in the policy. These tend to be more risky due to the reliance on investments to increase the eventual payment amount. A young family may find this type of policy to be more cumbersome than helpful, but they also have the most potential to add funds to the minimum payout for beneficiaries.

Last but not least is the annuity option for life insurance. This type of insurance plan offers a monthly payment, and is usually integrated as part of a retirement plan that begins at a stated period of time. Annuities can have a fixed payment amount that is due each month, or it can have a variable rate depending on the selected plan. Anyone interested in this type of plan should take one out with the assistance of a financial planner as a component of your overall retirement plan.

Phew! Nobody can deny that choosing a life insurance policy can be daunting and complicated, but the key element to consider is your end goal. Each policy type has its own positive and negative aspects and by keeping your final objectives in the forefront of your research, you will have an easier time deciding which is best for you and your family.

Interactive Insurance Agency works with dozens of carriers, which gives our customers the best possible opportunity to save on your insurance policy by comparing rates.  Get your free life insurance or annuity quote today and let us show you how we can save you money of your policy premium.