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If you're thinking about buying life insurance, and you're not sure if term insurance, whole life, or universal life is right for you, we have a life insurance selector that can help you make the right decision.
Choosing Life Insurance
Life insurance plays an important role in your financial contingency plan. However, as a consumer, it's sometimes difficult to figure out what kind of life insurance is the right choice. Life insurance is a topic most people don't like to talk about, and insurance policies are normally a long-term commitment.
We've talked about the benefits of term life insurance versus permanent life insurance (such as whole life and universal life insurance) elsewhere on this website. After reading through all materials you can find on life insurance, you may still be confused. The following questions may be able to help you determine the best balance of coverage and features:
Question 1 - How long do you think you will need life insurance coverage?
- Ten years or more. Go to Question 2
- Less than 10 years. Term Insurance is usually the right decision for a short-term investment in life insurance.
Question 2 - In addition to owning a life insurance policy over the next ten years, do any of the following features appeal to you?
- Premiums that never increase over the life of the policy.
- Lifelong or permanent life insurance.
- An insurance policy that allows you to accumulate a tax-deferred cash value which can be withdrawn or borrowed against in an emergency.
- Yes. Go to Question 3
- No. Term Insurance is probably the right decision if all you're looking for in an insurance policy is the coverage benefit.
Question 3 - Does your household budget limit the amount of money you can allocate to life insurance, or do you have some flexibility built into your budget?
- No, I have budget flexibility to spend on life insurance. Go to Question 4
- Yes, my budget limits the amount of money I can spend on life insurance. Term Insurance is arguably the most efficient life insurance policy you can buy when it comes to maximizing coverage.
Keep in mind that the primary reason for buying life insurance is for the financial protection it offers your family when answering this next question. This means you should never lower the amount of insurance coverage you're going to buy in order to gain some of the extra life insurance features mentioned above.
Question 4 - Which of the following two statements best describes your present situation?
- I like the features of permanent life insurance, and I believe I can afford the higher premiums necessary to provide the insurance coverage I need to protect my family. Go to Question 5
- I like the features of permanent life insurance, but the only way I can afford the coverage I need is by supplementing permanent insurance with some term life insurance. A combination of Term Insurance and Permanent Insurance can help you to balance the desire for the advanced features of permanent insurance with the need to provide adequate coverage to protect your family.
Question 5 - Which type of premiums appeal to you?
- Adjustable premiums, which allow me to pay more or less depending on my current financial situation. Go to Question 6
- Fixed premiums. Whole Life Insurance provides you with the features of permanent life insurance, as well as the benefit of an accumulating cash value fund.
Question 6 - Are you interested in a guaranteed death benefit and a fixed rate of interest, or are you willing to assume some higher level of investment risk in order to try to achieve a higher return?
- I prefer certainty when it comes to benefit and interest rate. Universal Life Insurance provides the flexibility of adjustable premiums, an accumulating cash value, in addition to the insurance benefit.
- I'm willing to assume some risk in an attempt to achieve higher returns. Variable Universal Life Insurance is perhaps the most flexible and feature-rich type of life insurance you can buy; including attempting to achieve higher returns on your investment.
Life Insurance Calculators
Once you've decided which type of life insurance is right for you, then you're also going to need to decide how much life insurance you need. To help you with that decision, we have several online insurance calculators that can help:
About the Author - Life Insurance Selector
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