How to choose the ideal life insurance coverage


life insurance coverage is a wise decision if your income is essential to someone other than yourself. Four out of ten Americans lack life insurance. Getting life insurance is a simple method to safeguard your family.

The best option if you’re young and healthy is probably to live a long life. After the Great Recession, many Americans fought to make ends meet rather than saving for the future.

But now that things are improving and there are more jobs available, individuals are giving greater attention to their retirement and savings plans, which includes life insurance.

Do you require life insurance, then? And if so, what characteristics ought you to consider?

Life insurance probably isn’t a top priority if you’re young, single, and on a little income. However, if someone other than you alone depends on your income, such as a spouse, child, or even an elderly parent, the tragic event of your passing would be an even greater difficulty once the financial impact sets in.

According to a late 2012 survey by industry website, over four in ten Americans do not have life insurance coverage, and of those who do, more than a third claim to not fully grasp the conditions of their policy.

If you belong to one of these groups, it’s time to change that. Similar to disability insurance, life insurance is a simple way to safeguard your loved ones and is quite reasonable if you choose a straightforward “term” life insurance policy while you’re young, healthy, and in good health.

With term life insurance, you pay a regular premium in exchange for a benefit that will be paid out if you pass away within a predetermined “term,” such as the next 20 years.

This kind of policy is ideal in the vast majority of situations, and here’s why:

• Modifiable. Your health, the length of your term, and the level of coverage you desire all go into the price you are given. This enables you to modify your policy so that it best suits your unique situation.

Simple comparisons Because the terms are simple, term life insurance is simple to compare amongst insurance companies. There is only a premium, a time frame, and a benefit.

• Low cost and targeted. Term life is nothing more than life insurance. This gives you greater freedom to shop around for different financial products to find the greatest deal and fit rather than signing a complex contract that might not be your best option and is structured in a confusing way.

However, it’s important to note that term life has been rejected more frequently recently as Americans have resumed looking for life insurance. Whole life insurance and universal life insurance both had large increases throughout the course of 2012, according to LifeHealthPro, an advisory group for the life and health insurance sector, but term life insurance sales decreased.

In what ways are these products different from term life insurance policies then?

The term “whole life” refers to an insurance policy that, contrary to its name, pays benefits for the duration of the insured’s lifetime and eventually accrues a final death benefit. Some people prefer the option of cashing out a whole life insurance early for a portion of the total death benefit should they desire or need the money because a term life policy can leave you with nothing after 20 years of premiums (except from your health, obviously).

You must pay a premium for this plan, and if you cash it out early, you risk paying exorbitant penalties and receiving little money back in your pocket.

The structure of universal life is similar, but it requires policyholders to contribute more than their base insurance costs in order to fund the development of high-interest savings or investment accounts. Think of it as a combination insurance and investment strategy.

However, this type of organization might come with high costs, and there is no assurance that any investments would be successful. Most Americans either don’t think there is a problem with these plans’ high costs and hazards, or they don’t fully comprehend them.

According to LifeHealthPro, “indexed universal life” currently accounts for 28% of the overall life insurance market, where the extra money is invested in a stock market index like the S&P 500. The S&P has lately reached all-time highs, and since its 2009 low, it has increased by nearly 140%. Indexed universal life policyholders are probably quite content.

However, keep in mind that some S&P 500 index funds offered by firms like Vanguard may only charge $2 or $3 for every $10,000 you invest. While fees and commissions for sophisticated insurance and investing hybrids could reach 100% of your first year’s premium.

Why not simply purchase term life insurance and invest in a mutual fund? Over many years, the cost reductions will mount up significantly.

The Frugal Investor’s Guide to Finding Great Stocks was written by Jeff Reeves, who also serves as the editor of

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