We'll start with the all-time dilemma; the question of whether you should purchase a Term Life Insurance or another type of Life Insurance that accumulates cash value. One way or another, everybody is aware of the main reason why this question constantly surfaces; monthly premiums! Term Insurance happens to be the least expensive, and most of the time people tend to purchase it just because of this reason.
Additionally, people get different answers from different insurance professionals; some advocate Buy-Term and Invest-The-Difference and some recommend Whole Life, Universal Life, Variable Life, or maybe combination of the two or more of them. In the end, choosing an insurance policy becomes a dilemma between the premiums and the suggestions that you hear from various insurance professionals.
So what is the answer to this question and how do you select the right insurance policy for yourself?
In reality, there is no cookie-cutter answer for purchasing either Term, Whole Life, or any other one for that matter. Everybody has different needs and one size hardly fits all. So in order to accommodate different situations and needs, Life Insurance has evolved into many different types. As a result, the right choice depends on your answers to the following questions:
o What is the very purpose of your life insurance?
o Why are you really buying it?
You should keep in mind that Life Insurance is indeed one of the most versatile products that you can purchase in the market. It can be used for many purposes such as;
o Retirement Supplement
o Pay off debt
o Estate Planning
o Pay off taxes
o Supplement for a college education
o Income replacement for your spouse
o And the list continues depending on your personal needs
Once you determine the purpose of your needs, you now have to identify the type of life insurance you should be purchasing. This actually creates another dilemma; now you need to have the proper knowledge of every type of policy so you can decide which one or maybe the combination of the ones to purchase. On this note, let's touch base with the main types of Life Insurance Policies in the market:
o Term Life
o Whole Life
o Universal Life
o Variable Life
It should be pointed out that these are only the main types of life insurance policies where there are also many others as well as the variations of these policies available in the market. Nevertheless, in order to decide which one of these policies is more suitable for your personal needs requires broad knowledge and here are just a few important topics that you need to be aware of; how these policies develop cash value, how dividends get distributed, the time period you have to pay into your policy, how premiums are calculated, any premium changes after a certain time period, is it participating or non-participating, etc.
Of course as a third step, you also have to calculate the amount of life insurance you need as well. This indeed is separate topic and the methods of calculations can be put in a nut shell as follows:
o Multiples of Income Approach
o Financial Needs Analysis Method
o Capital Needs Analysis Approach
o Some other methods that various insurance companies developed themselves
In summary, following is the list of the key steps of purchasing the right life insurance for your personal needs;
o Deciding why you are buying the policy. In other words, what's the purpose of your life policy?
o Knowing the type of policy that suits the best for your personal situation. Is it Term, Whole Life, Variable Life, Universal Life, or combination of any of these policies?
o Calculating the amount of your policy based on your purpose
One way or another, getting a life insurance is not just buying the least expensive policy, it is indeed a series of decisions and calculations that requires considerable amount of knowledge. The process can be quite tedious, depending on your situation, and it is best to consult an insurance professional to have it done right.
