How Do I Choose a Life Insurance Product?
The concept of life insurance is actually pretty simple: Pay today to protect your loved ones when you're gone tomorrow.
But with so many types of life insurance out there, it can be hard to choose the right one for your situation. We can help you with this big decision.
Coverage and features to consider when choosing life insurance:
Basic protection - Do you need life insurance just to provide financial support to your survivors if you die unexpectedly? Term insurance generally provides coverage at a lower cost than other types of insurance and can cover a specific length of time.
Market participation and cash value - If you need insurance protection for the long term, want the potential to build cash value (money from which you can borrow, even during your lifetime) and have a little more money to spend, consider permanent life insurance.
There are three types of permanent insurance:
1) Whole life insurance builds value based upon a set schedule. You'll know the exact cash value of your policy on each policy anniversary. (If you take a loan or withdrawal from your policy, of course, the cash value and death benefit will decrease.)
2) Universal life insurance earns a fixed interest rate on the cash value in the policy. While the interest rate may change over time, it will never dip below a guaranteed minimum rate.
3) Variable universal life insurance lets you invest your cash value in the stock market, so your policy value goes up or down based on the performance of your investment choices. The investment subaccount options in VUL policies are not offered for sale to the general public.
How long should your coverage last? Do you need life insurance coverage just for a specific timeframe – like while you're paying off your mortgage?
Term life insurance offers protection for a set period. All other types of insurance cover you for life, as long as the necessary premiums are paid.
Fees and charges - Before you buy, ask about the fees and charges associated with a life insurance policy, how they're calculated and what they're for.
Access to your money - Will you need to take money out of your policy in the future, for instance, to pay college tuition or to take retirement income?
Most whole, universal and variable universal products let you withdraw money from your policy or take loans.1 Some, however, restrict when you can take money, how much you can take and, in the case of loans, the interest rate.
Flexible payments - Some universal and variable universal life products let you make flexible payments once you've paid enough to cover your policy charges.