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How to Choose the Best Life Insurance Plan

I know that discussions about death can be very uncomfortable for a lot of people but it shouldn’t be, because it is something that would occur whether we talk about it or not. However, we can make our lives count by living it well and preparing for what would happen when we are gone. If you have any dependents, then there are chances that if you cease to exist, these people would suffer.

Think about the countless numbers of widows and their children who are suffering and have to drop out of school because the bread winner couldn’t be there to provide for their needs anymore. This is why life insurance was developed; to give assurance and protection for your family and dependents should something bad happen to you. Now, don’t mistake life insurance to mean coverage for when you die; as this is not only what life insurance is about.

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Life insurance coverage would also cover you in the event that anything bad happens to your source of income and you are unable to provide for your dependents. There are lots of insurance companies as well as life insurance products and deciding on the most suitable one may be a confusing process. This guide would arm you with the right information needed to make a decision.

Difference between Group and Individual Life Insurance Policy

Individual life insurance is a policy bought solely for you and paid for by you. You would be able to decide on the features you want and the extent of protection you desire while group insurance is bought by your employer or a union to which you belong as a collective policy. You would have no control over the policy and sometimes, the coverage might not be sufficient to provide for your dependents when you gone but it is usually cheaper and cost-effective.

How Much Life Insurance Coverage Do You Need?

When you want to buy yourself a life insurance policy, you have to decide on what you want the insurance coverage to do for your dependents while you are gone. This would determine how much coverage you need.

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For instance, if you have kids, you would want to provide for their education and feeding, you would also want to provide for their living expenses like mortgages, loan repayments, utility bills, etc. To calculate your life insurance needs, you should take the following steps-:

  • Make a list of all the expenses your dependents would likely make when you are gone e.g. tuition fees, feeding, mortgages etc.
  • Compile another list of all debts including loans and credit card debts
  • Make another list to include all the assets you currently have like stocks, bonds, cash in savings etc
  • Look into the existing insurance coverage that you already have. For instance, if you are employed, there are chances that your employer would already have you covered to an extent
  • Deduct all the anticipated expenses and debts you already calculated and deduct it from your existing policy, this would give you a clear idea of the amount of extra insurance coverage you need.
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4 Types of Life Insurance Products

a. Term Life Insurance

This is how term life insurance works. You get an insurance company to cover your life for a specific number of years- say 10 years and then if you die during that period, the benefits would be paid to your beneficiaries but if you don’t, no compensation would be paid.

This type of insurance policy usually offers low premiums and the benefits are not taxable but as you grow older, the premium continues to increase and may eventually become unaffordable for you. Also, it doesn’t build cash value or offer interests and dividends.

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b. Whole life insurance

This type of insurance would cover you for the rest of your life as long as you continue to pay premiums. It also offers a cash savings feature which you can borrow against to cover for unanticipated expenses while you are still alive but if the amount borrowed is not returned before you die, it would be deducted from the benefits that would be paid to your beneficiaries when you die.

c. Universal life insurance

Under the universal life insurance policy coverage, the premiums you pay would be placed into an investment fund which would be managed by the insurance company and the cost of your policy as well as the administrative costs of the insurance company would be deducted from the account.

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d. Variable life insurance policy

Under this policy, your benefits would depend on the interest rates of the assets on which your policy is invested. When interest rates goes up, your benefits would be high and vice-versa.

To buy the best life insurance policy, you have to-:

How to Choose a Life Insurance Plan – 7 Crucial Factors to Consider

1. Look for a reputable company with proven track record and because insurance is a long-term business relationship, you should choose a company that is solid financially. You can learn information about an insurance company’s financial strength using A.M Best Co. rating services. You should also go for a company that is licensed by the government.

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2. If you have to work with an insurance agent, go for someone who is licensed, experienced and has a credible reputation.

3. Do not rush or be pressured into making a decision. Take your time to strategize and plan, and choose the right life insurance policy for yourself.

4. Ask for multiple quotes from your insurance broker so that you can have a variety of options to consider and choose from.

5. Avoid the temptation of overbuying. Yes, you should buy sufficient coverage but you should avoid overlaps which would only cost you more premiums.

6. Ensure that you understand all the terms and conditions of the policy before you purchase the policy and ask questions when you don’t understand anything.

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7. Lastly, you should ensure that you review your coverage regularly and make necessary adjustments but you should avoid the temptation of changing your life insurance policy frequently because this would increase your premiums. Also, you should set a budget before you purchase so that you do not end up with a life insurance policy with premiums you cannot afford.