How to Compare Life Insurance Quotes
If you are looking for life insurance you need to know how to compare the different policies and to examine how they will work for your needs and purposes. A basic rule for the amount of life insurance (with some exceptions) you will need is two to four times your annual income. You also need to be able to recognize that there may be more than one name for the insurance you want to purchase. There are five types of life insurance: Term life, whole life, variable life, universal life, and universal variable life. Because each type of insurance will have as many different names as there are insurance companies it is essential to understand these differences when buying life insurance otherwise you can end up comparing not apples and oranges which are at least both fruit, but a more obtuse comparison like an orange to a tennis ball, both are round but serve vastly different purposes.
Term life is generally the least expensive life insurance available. As inferred by the name, term life is for a given term usually a specified number of years. Some term policies offer a double indemnity rider, which will double the face value of the policy if death is the result of an accident (a rider is a paragraph added to a standard policy contract to increase or change the policy contract). Many people rely on term policies to protect dependents, especially while their careers are still developing. A few companies are writing ‘return of premium’ term policies, which while more expensive during the term of the policy actually returns all the premiums paid during the twenty or thirty year term to the surviving insured in one lump sum.
Mortgage life insurance is generally term life. Mortgage life insurance is frequently required by financial institutions in order to obtain a mortgage. Mortgage life is normally for the term of the mortgage but can contain a rider, which guarantees convertibility to a simple whole life policy at the completion of the mortgage. Some mortgage life policies have a declining face value, as the mortgage is paid down the face value (amount paid out in the event of the insured’s death) of the insurance also declines.
There are three primary benefits of term insurance: Lowest possible premium, unchanging premium and constant face value. There are some draw backs to term insurance, first of all the coverage will end at the date / time specified in the insurance contract. Also if you want to continue the coverage for another term it will almost certainly have a higher premium. A third detractor for term insurance is the fact that it does not build cash value.
A whole life policy provides the same level of benefit to beneficiaries from the effective date of the policy until the death of the insured regardless of the number of premiums paid. One obvious benefit is the premiums and benefits remain constant. The average whole life term is considered one hundred years, if the insured has paid the premium until age 100 the face value and any accrued cash value will be paid to the insured. Most policies (term and whole life) do have a suicide exclusion that is effective for up to three years from the inception of the policy. Whole life policies do build cash value that can be used to reduce or eliminate premiums. Whole life policies depending on the contract allow the insured to borrow money from the face value or dividends.
The face value of the policy remains constant as does the premium even though the death benefit with a variable life policy can vary in direct relationship to the fund cash return; it is a low risk tax free cash accumulating policy that allows the insured to borrow, but has no guaranteed cash value during their lifetime. Variable life policy can be expected to have somewhat higher premium because of the investment value added to the death benefit.
Universal Life is another investment centered life policy. Universal provides permanent protection with a greater degree of premium and face value flexibility. It is also a tax deferred cash accumulating policy from which funds can be withdrawn or borrowed. Many people using this type of investment tool feel that one of the major shortcomings of the universal life policy is the lack of control available to the insured.
Universal Variable Life
Universal Variable life does pay a death benefit, but it is also has low risk tax deferred cash value options. This policy mandates a larger premium to cover both the insurance and investment characteristics of the account. One feature many policy holders like about the universal variable life is the separate accounts managed by the insured allowing portions of the premium to be placed into money market, certain approved stocks, or bonds. Because the policy holder manages the investments long term success depends on how well the insured manages the account. A distinct disadvantage of Universal Variable Life is that the insured may be required to significantly increase the premium if the investments are not producing or worst case scenario actually losing money. One important caveat, universal variable policies commonly stipulate that early termination pays less cash value as well as possible termination fees and other costs.