Buying life insurance in New York is about protecting the dear ones in your life today and in the future. Before purchasing a policy, it’s important to understand that there are significant differences between the types of life insurance available in the market. Do you need short-term coverage with a pathway for permanent protection or lifetime coverage with an investment component? This life insurance buyer’s guide provides crucial insights to help you make an informed choice.
Life Insurance Basics
A life insurance policy can close the gap between your dependents’ financial needs and the money available from savings and other sources. If you continue paying premiums as dictated under your policy’s terms, then your family stands to be compensated with a specified death benefit after your demise.
Who Needs Life Insurance?
Many people tend to seriously consider taking out life insurance when their financial health or stability becomes important to the well-being of their family. However, life insurance can benefit any adult, at any single moment in their life.
You may need life insurance under circumstances such as:
- You got married and wish to protect your spouse’s future
- You became a parent and are looking to protect your child’s future
- You took out a mortgage
- You have long-term debts
Keep in mind that one type of life insurance may suit you better than the other at different moments in your life.
Understanding How Different Types of Life Insurance Policies Work
Policies may differ, but one of the key benefits of buying life insurance is the amount the insurer agrees to pay when you pass away. There are three basic types of life insurance, each of which includes a death benefit.
Term Life Insurance
For the premiums you pay, term insurance offers death protection for a definite duration, such as five, ten, or more years. If you pass away within the coverage duration, your insurer will pay the death benefit. This type of insurance usually pays the largest immediate death benefit for the cost of premiums.
Whole Life Insurance
Whole life is a type of permanent life insurance that provides death coverage for your entire lifetime. Straight life is a common type of this policy with premiums that stay the same for as long as you live. The premiums may be more expensive than what you would initially pay for the same death benefit under term insurance. With some life insurance plans, you can pay premiums for a shorter duration, such as 20 years, or until you are 65 years old.
Whole life may be more expensive than term life insurance, but it usually includes a “cash value” component. You may withdraw the accumulated cash value or even borrow against it while you’re still alive.
Endowment insurance pays you an amount of income if you are still alive by a specified date. The death benefit goes to your named beneficiary if you pass away before the designated age. The policy is more expensive than standard whole life premiums. It also offers higher cash values.
Variations of Life Insurance Policies
Life insurance policies may differ or vary in more ways than the three basic forms. Others may bundle more than one type of policy into a single plan. For instance, some term life insurance options are extendable for single or multiple terms, including when your health has changed. Extending the policy comes with higher premiums. Similarly, you may be able to convert some term life policies, such as the whole life insurance, before the expiry of the conversion duration.
When it comes to permanent life insurance, there are other options, such as universal life, which includes cash value and a death benefit. It differs from whole life insurance in that its premiums are flexible. As such, you may increase or decrease premiums for this policy as you wish within the specified policy limits.
How Much Life Insurance Should You Buy?
Some policyholders consider it safe to buy coverage worth ten times their annual earnings. Whichever formula you use to calculate your life insurance amount, always consider your family’s unique financial needs first. Think about the income you’re looking to replace and other expenses your family may need to pay for, including bills and debts. Common considerations include:
- Your children’s college fees
- Outstanding car loan
- Mortgage debt
- Costs of funeral expenses
How Can You Know You’re Getting Quality Life Insurance?
Once you’ve identified a life insurance policy that best suits your needs, you can start doing some comparison shopping. There are several ways to determine if a plan offers the best value for money, but the most reliable are two types of cost indexes.
Here, “cost” means the difference between the amount the policy pays back and what you pay. In this way, cost indexes let you easily compare the cost of similar life insurance plans.
- Surrender Cost Index-This figure can help select an affordable whole life plan based on the cash value component. It lets you compare costs if, after several years, you choose to surrender the policy for its accumulated cash value.
- Net Payment Cost Index-Look at this statistic if you consider the policy’s death benefit more important than the cash value. It lets you compare life insurance costs several years down the line if you keep paying the required premiums and don’t take the cash value.
These are some of the key features that a typical life insurance policy summary should highlight. When you’re ready to get started on your life insurance policy talk to the professionals at Premier Risk Insurance. We serve Long Island and surrounding cities in New York, and we look forward to hearing from you today.