How to Choose the Right Life Insurance Policy
Life insurance can be a complicated subject, and figuring out how to choose the right plan for you is even more complex. Read our helpful guide to assist your decision.
Questions to Ask When Choosing a Plan
You can decide on the right policy for you when shopping for the lowest rates by asking yourself a few questions:
How long do you need coverage?
If you are looking for short-term coverage for a specified period of time, then term life is the way to go. You might need short-term coverage because you recently took on a mortgage or sent children to college, etc. If you are looking for lifetime coverage for your loved ones, then permanent life insurance is a wise option.
How important is cost to you?
For those on a tight budget, term options can provide large amounts of protection for relatively little cost. If you don't have much money to spend but would still like to protect your family, term is the way to go. However, the savings you will realize on term plans are short-lived, as the premiums might become unaffordable later on. On the other hand, permanent coverage is more expensive initially but will save you money on premiums in the long-run.
Do you want to build cash value with your policy?
If you are looking for an option that will also serve as an investment, then permanent protection is a good decision because it will accrue cash value over your lifetime. You can withdraw this value or borrow against it for major expenses. If cash value is not important to you, consider term instead.
How much debt do you have?
Choosing the right policy also involves deciding on how much coverage you need. If you have considerable financial obligations currently, such as debt, mortgages, etc., then your policy should be able to pay off these debts without burdening your survivors. Similarly, if you know your family will have heavy financial obligations down the road, such as sending children to college, then you should up your coverage to include these costs.
Would you like to take advantage of tax breaks?
Certain policies will allow you to earn money on a tax-deferred basis, thus maximizing your investment. If you choose permanent coverage, you will enjoy substantial tax breaks on the cash value you accrue. Additionally, most death benefits are received free from income tax with all plans.
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