Issues To Consider In Determining Life Insurance Cover

Life insurance is a not a one-size-fits-all product. Each and every person has different financial circumstances and health needs.

So, once you’ve decided to buy life insurance, you have to think about not just the kind of insurance you’ll purchase, but also how much cover will best suit your needs. Here are some essential issues that may want to take into consideration.

1. How Long Do You Need The Cover To Last

Do you have a specific timeframe that you want to be covered for? You can purchase term life insurance policies with guaranteed level premiums for a short period of time. Once the guaranteed period ends, the premium can be quite costly, so if you anticipate that you need cover for more than 30 years or for your entire life, then a permanent life insurance may be the one for you.

You can also purchase a term policy with a conversation option that guarantees you’ll always have affordable coverage for as long as necessary.

2. Is Disability Waiver Of Premium Worth Buying?

A disability waiver of premium extra added to a life insurance policy is an expensive way to get limited cover. Disability riders differ by insurer and policy, so you need to understand exactly what benefits you’ll receive and how it will affect the cover. There are waivers that cover only the insurance cost, while some replace the entire premium, which allows the cash value in a permanent policy to continuously grow.

3. Are You Looking For A Guaranteed Policy?

Only term life insurance policies have guaranteed premiums and death benefits. In most permanent life insurance policies, the premium is based on various assumptions, including an assumed rate of return. This means that the policy owner accepts the investment risk, so if ever the policy underperforms, you can be forced to pay a higher premium. That’s why it’s important to understand where you want to have the risk and where you want guarantees in your financial life.

4. What Should You Do If You Have Health Issues Or Are Rated?

Insurers rate medical issues differently so if your potential insurer offers a policy with a rating, you should shop around and look at what other companies are offering. Many companies offer a table shaving program, especially towards the end of the calendar year, which could be beneficial for you because they can move your table ratings up in order to meet their goals. This can drastically reduce the cost of insurance.

5. How Should The Policy Be Owned?

Your death benefit may be included in your gross taxable estate depending on how you own a life insurance policy. If you think your estate could be taxed, consider having the policy owned by a spouse or an irrevocable life insurance trust.

6. Should You Have A Policy That Builds Cash Value?

Many people purchase life insurance for the leverage, — paying a small premium to get the large death benefit. If you don’t have a specific need for permanent cover, it makes sense to first have a term life insurance policy with a conversion rider and fully fund your other retirement plans. You can then buy a permanent life insurance policy when you have the cash flow and are ready to commit the funds for a long period of time.

7. Level, Increasing Or Decreasing Death Benefit

Term life insurance policies offer only a level death benefit, while permanent life insurance policies allow you to elect a level or increasing death benefit. Since many policies allow you to switch between the level and increasing option, you can adjust your cover based on your needs.