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What to look for in a life insurance policy

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A life ring floating in water
Photo by Lukas Juhas on Unsplash

Purchasing life insurance may be one of the most important financial decisions you ever make. Life insurance protects your loved ones and gives them peace of mind that, should the unthinkable happen, they will be taken care of.

With so many considerations about what type of coverage to get and how much to spend, this article opens your eyes on what to look for in a life insurance policy.   Once you’ve got this overview hop over and compare life insurance products on Moneyexpert.com for the best deals.

Term Life Insurance Types

Choosing the right term for your insurance is the first consideration. There are two basic types to know – Level Term and Decreasing Term. Each type is suitable for a different situation, so here is a quick summary of each:

Level Term

This type of life insurance will pay a set amount if you die within the term of the policy, which is decided when you first sign up. No matter how far into the term you pass away, the payment stays the same. Terms can range from 5 to 50 years but typically fall into the 10 to 25-year range. This policy is more expensive but offers peace of mind for financial dependents.

Decreasing Term

Also known as mortgage life insurance, decreasing term life insurance is best for people who just want enough coverage for the life of a debt. As the term of the insurance policy goes on, the payment decreases as well as a mirror to the debt it is covering. The decreasing payment amount of the policy makes it the cheapest type of term life insurance.

Whole of Life Assurance

Under no specific limitation as far as term is considered, whole of life assurance policies will pay out no matter when the policyholder dies. The payment will be the same no matter what. The premium paid for this type of insurance is substantially higher than either type of term life insurance. Whole of life assurance policies are tied to investments, making the premium subject to increase rather than fixed.

Premiums

The premium is the amount that you pay, most typically on a monthly basis, for the insurance coverage. The majority of life insurance plans have a guaranteed or fixed premium that does not change throughout the plan. It is worth making sure that the premium is guaranteed, however, before you sign on the dotted line. Be aware that there are reviewable premiums that give the company the right to raise the premium as you get older or for other reasons.

Exclusions

Like other legal agreements, life insurance policies come with their own set of restrictions and conditions that could prevent your beneficiaries from receiving the policy payout. Review the full disclosure information included in your policy.

Many insurance companies will exclude coverage from people based on certain risks like a dangerous job or a hobby. Health risks could also exclude a person from coverage, such as a heavy smoker. As well as these general exclusions, some policies will not pay out in the event of:

  • Suicide
  • Drug and/or Alcohol Abuse
  • War or Terrorism
  • Reckless Activity
  • Gross Negligence

Calculate Your Cover Amount

Working out how much cover you need in your life insurance policy takes a bit of time. Use the following calculation points to determine your level of coverage:

  • Debt – include mortgage, loans, and credit cards
  • Costs – funeral and burial expenses
  • Income – What is the life expectancy of anyone who depends on your income? What is the duration you want to replace your income for your dependents?
  • Maintenance – Do you want to fund education or other life events for your dependents?

Once you add up these expenses, the amount may shock you. After you calculate your debt and obligations, deduct any other group life policy you may hold such as one from work or from a fraternal order or membership, funds from your retirement plan, or other savings.

To be sure you get the coverage and terms you need without paying too high of a premium, your best bet is to compare policies online. Using a website such as moneyexpert.com is the fastest way to get the right level and type of life insurance, with terms that are easy to understand.

 
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