Life insurance is often overlooked as a part of a complete financial plan. After the financial turmoil of the 2000’s the stability of many financial products such as mutual funds and 401(k)’s have been questioned. Life insurance is difference in that it has always been designed to be there when your family has a tragedy. When comparing life insurance policies, there are a lot of factors to consider. The three main factors to consider are the type of life insurance, the details of the riders to be included, and the quality of the company.
Like all financial products, life insurance is a complex field. It is best to work with an experienced insurance agent. You may want to choose an agent who focuses just on life, health, and disability products. Or you may want to check with your home insurance or auto insurance agent to see if they also provide life insurance products. Also, if you already have a financial advisor or investment advisor, many advisors are also licensed life agents. Regardless of whom you work with, use the information that follows to guide your discussion with your life agent.
Type of life insurance
The two main classifications of life insurance are term life and whole life. A common analogy is that term life is like renting a home and whole life is like owning a home. With the whole life policy, it is designed to cover the insured for the rest of their life. The best role for whole life insurance is to cover any “final expenses” at death: funeral, final medical bills, legal bills. Term insurance is indicated by a fixed period of time, for example, 20 year term. The best role for term insurance is for income replacement when a family is at its peak income need. If a working adult dies while the family has young children and a mortgage, the family will need a lot of income to adjust.
Associated with life insurance are various forms of indemnity insurance. These are living benefits that are paid to the insured when they have an accident or illness. Common types of plans include hospitalization, cancer treatment, critical illness, and disability. Aflac (American Family Life Assurance Company) is widely known for these types of policies, even thought many insurance companies have similar plans. These types of plans are becoming more necessary has medical costs increase, co-payments increase, and paid sick time from work decrease.
Most families need all three types of insurance coverage: whole life, term life, and indemnity insurance. Some insurance shoppers are attracted to one type of coverage. Most life agents try to provide a balance based on the family’s needs. Term insurance is less expensive for a given amount of coverage, but it usually limits the maximum coverage age for the applicant. Most people who have term insurance do not die within the term of the insurance. The term coverage will not be there when the insured dies of old age in their 80’s. Whole life, on the other hand, fills that role such that the death of an elderly insured does not leave a financial burden on the family. When comparing life insurance, look at the full coverage package, not just price or a few details.
Details of the riders
Riders are additional coverage added to a life insurance policy. Common riders include spouse coverage, child coverage, accidental death coverage, disability waiver of premium, and refund of premium. These riders can be inexpensive ways to provide coverage in particular situation. Harford Life Insurance Company was recently recognized as a industry innovator for an Accelerated Benefit Rider which provides access to 100 percent of the death benefit in the event the insured is diagnosed with a chronic illness. In many situations, a family may need some of the life insurance funds to deal with a chronic illness. American Income Life Insurance Company has a layoff premium wavier which helps a family keep the insurance after a layoff. When comparing life insurance, look at which riders are including and which can be added as needed.
Quality of the company
Most life insurance companies are solid financial companies that undergo reviews by all the states and provinces in which they operate. Check with your state’s department of insurance to see if they have any information on a particular insurance company. A.M. Best is a independent rating agency for insurance companies. There website is www.ambest.com. Most insurance companies receive a letter grade for their financial strength. The grades range from A++ for superior down to D for poor.
If you are asking friends or professionals questions about a life, consider the following questions. “Has the company ever paid an indemnity claim to you?” “How easy is it to get a life agent to come to your home for a policy review or a customer service issue?” “Do any organizations use or recommend this company?” When comparing life insurance, make sure you trust the company that will insurance you for the rest of your life.
For the protection of your family good life insurance is very important. It is worthwhile to work with a professional to compare several plan options. Make sure that you review the balance between whole life and term insurance, the riders which will be included, as well as the strength and stability of the insurance company.