How to buy life insurance: The death of a family member is a heartbreaking event, the last thing that the surviving family needs are the financial stresses that can result from the loss of a loved one. A life insurance policy will alleviate your family’s financial strain in the event of your untimely departure.
There are four major types of life insurance; term life, whole life, universal life and variable life. The following definitions are a general description, state regulations and company policies may alter each type slightly.
Term life coverage is purchased for a specific price and covers a specific period of time. If you should die within the specified time frame your beneficiary receives the full amount of the policy. If you should survive beyond the policy’s expiration date the money paid on the policy is forfeit.
Whole life is similar to term life with one exception; whole life covers you from the policy effective date until your death. The policy premium remains level through the life of the policy.
With a Universal life policy, you decide the amount of money to add over the minimum premium payment. The amount paid over the premium is invested by the insurance firm; generally the funds are invested in low yield bonds and mortgages. Universal life policies are available in two types Type I (Type A) and Type II (Type B).
With a Type I policy the cash fund, including investment returns, goes towards the face value of the policy upon the policyholder’s death. A Type II policy the named beneficiary receives the face value of the policy plus all or most of the cash account.
A variation of the universal life policy, a universal variable life policy allows policyholders to choose where their over premium cash payments are invested.
A variable life policy has more investment options than a universal life policy, which can allow for a greater return on cash investments.
Once you determine the best type of insurance policy for your situation, the next step is to determine the amount of coverage that your surviving family will need to remain financial sound. The minimum policy coverage should be equivalent to one year’s salary plus funeral expenses. Now that you know the policy type and amount you need, the next step is to submit applications to insurance companies.
With the vast amount of insurance companies on the market, it may seem overwhelming trying to decide which company to submit your policy quote applications. Purchasing life insurance through a financially stable insurance provider doesn’t need to be a complicated and daunting task. Life insurance providers are given a rank; this rank is based on their past, current and probable future financial stability.
There are five major firms that rank insurance companies; AM Best, Standard & Poor’s, Moody’s, Fitch and Weiss. Each ranking firm has its own designation from best to worst, for example, AM Best has a top rank of A++. Many high ranked insurance companies freely display their rank on your policy quote.
When you receive the written policy quotes from the insurance companies carefully review each quote to determine the best fit for your needs. After you choose an insurance policy, you may need to have a physical to receive the final amount of the insurance policy premium.