Insurance Policy

Wednesday, March 17, 2010

How to Choose the Best Life Insurance Policy

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Is it possible for buyers to end up with the best life insurance policy? Let's face it. If you're not an experienced life insurance agent, it's very easy to get overwhelmed by this subject.

Understanding the differences between the types of life insurance policies available today and their associated fine print is something people need to do for themselves, by themselves, if they want a chance at getting the best life insurance policy.

If you leave your decision up to your agent, you may not get the best life insurance policy, but your agent likely will earn the best possible commission. Although that may sound harsh, there is some truth to that statement. Life insurance is a product and most life insurance agents earn commission on the products they sell.

Do your research

As mentioned above, a good place to begin the process of finding the best life insurance policy is to understand the two main types of life insurance. The easier of the two is "term" life insurance. This policy will be in effect for a pre-defined period of time.

Term life insurance can be purchased for 1 year, up to 30 years, or any period of time in between. A term life insurance policy provides a cash payout at the time of your death, provided you die within the term purchased.

The other type of life insurance policy is called "cash value." It covers the policy holder for the duration of his or her life. This type of policy pays benefits upon death but it also has a cash value that grows over time. The policy holder is able to draw upon the cash value before death.

A cash value policy is often referred to as a Universal Life or a Whole Life insurance policy. This may be the best type of life insurance policy if you are looking for a way to supplement your retirement income.

However, it's also what makes cash value life insurance so much more difficult to understand. Among other things, such a policy involves selecting investment funds and paying investment fees that can be expensive. It frequently requires a certain ratio of death benefit to cash value in order to remain in effect.

And any amount that is borrowed can be subject to taxes, depending on the scenario in which the money was borrowed.

Simple is not always better

It's easy to make the assumption that term life insurance is the best type of life insurance policy, and it can be, provided the policy holder dies within the term. If death does not occur, the policy will simply expire. Policies of this type often include an option to renew, but when this happens, you can expect premiums to be much higher.

Do your research, understand the terminology involved as well as the pros and cons of the various types of life insurance, and when you do sit with your agent, you'll be able to select the best life insurance policy.

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