Life insurance policies provide cash relief and financial support for the loved ones that you leave behind. Insurance agent, Anthony Steuer, explains: "Life insurance is designed to replace income for someone or something that is dependent upon the insured." Types of Life Insurance PoliciesLife insurance policies can protect your family from financial hardships in the event of your death. The proceeds received from life insurance can help your beneficiaries pay for funeral costs, medical bills, and other debts that you may have left behind. This money also ensures that the household, mortgage costs, and other bills can be maintained in your absence. If you are interested in acquiring life insurance coverage, there are two basic types of life insurance policies to choose from: Whole Life Insurance Whole Life Insurance gives you coverage for as long as you live providing you make your premium payments. The best part about this type of life insurance is the fact that you can accrue additional money based on investments the you make. Investments may be in bonds, money market instruments, or stocks. After the policy has built cash value, you can borrow against it if you need to. However, you should keep in mind that borrowing against the policy lessens the amount of money paid out to your beneficiaries in the event of your death.The amount that you pay in premiums for whole life insurance coverage depends on your age and health at the time that you purchase the policy. In general, whole life insurance premiums do not fluctuate and may be quite reasonable if you purchase the policy when you are young. The type of whole life insurance coverage that you choose also affects policy rates. Common types of whole life coverage include:
Term Life Insurance is exactly what the name implies: life insurance for a specific term or amount of time. With term life insurance, you can purchase insurance coverage for a specific term or number of years. The premium for term life insurance policies is based on your age and health at the time of purchase, as well as the length of the term. Because term coverage is often much cheaper than whole life insurance, it is the preferred type of life insurance for most people. However, there is no investment potential. You cannot increase the cash value of your term life insurance policy by making investments, nor can you borrow against it. Shopping for Life Insurance Policies When purchasing a life insurance policy, it is very important to shop around prior to making any decisions. The cost of a policy can vary significantly depending upon the policy terms and where it was purchased. If you are looking for low cost life insurance, you may want to check with your employer to see what type of life insurance benefits you are eligible for. You can also speak to some of the associations and organizations that you belong to. Many of these groups offer low cost life insurance plans to their members. You can contact various insurance agents and groups to see what your options are. If you decide to go this route, make sure you get at least three quotes, so you can make comparisons properly. How Do You Choose a Life Insurance Company? Consider Anthony's advice in choosing a life insurance company: While determining your life insurance needs and the type of life insurance coverage are the first steps, it is critical to choose the life insurance company wisely. Life insurance, even a ten-year term policy, is a long-term proposition. You have to take into consideration whether your life insurance company will be around to pay the claim. This can quite a challenge as there over 1,600 life insurance companies offering thousands of life insurance products to residents of the United States. Fortunately, there are some common sense guidelines that will help you narrow the field to a more manageable selection of companies and products. Let's cover briefly how to evaluate a life insurance company from a financial perspective. Many "net-savvy" consumers are pros when it comes to looking up and analyzing financial data on stocks, bonds, and mutual funds. Performing insurance company due diligence, however, presents a new challenge. Fortunately, many of the leading sources of information make their ratings and "analysis" available to the online public and almost all of it is free. Most likely this will change as the rating services will view this as an income stream. Don't get caught in the trap of simply comparing two companies and choosing the better one. Instead, hold each company up to a pre-determined set of benchmarks. If an insurance agent wants to sell a particular company or product, it is not uncommon for the agent to offer two or three alternatives that look worse than the one the agent wants to sell. Finally, don't assume that it costs more to purchase insurance from a top-rated company. Remember, product illustrations are poor indicators of how a policy will perform. Since insurance companies generally have comparable expenses, reserve requirements, and overall investment strategies, buying from the best does not necessarily result in higher premiums. When selecting or evaluating a life insurance company, a logical place to begin is by reviewing the ratings given by the five major insurance company rating services. In a rating, the rating company or agency expresses its opinion of the life insurance company's financial soundness and creditworthiness. In some cases, the life insurance company will ask one or more rating companies for an evaluation and rating, and the company will then pay a fee ($25,000 to $30,000 is common) to the rating agency. Generally speaking, this fee does not compromise the rating because rating companies are extremely protective of their reputation for objectivity. Without public credibility, a rating is useless, so rating companies strive to maintain their credibility. Not all insurance companies are rated by each agency. Each agency employs its own techniques for determining a given insurance company's rating. Areas of consideration may vary and these include financial leverage, management stability, recent performance, and the rated company's overall financial situation. External factors such as competition, diversification, and market presence may also be considered. Each rating agency provides a description of its analysis and defines the meaning of each rating from the highest to the lowest. Since there are differences between rating agencies, this can make a fair comparison between different ratings somewhat confusing. Information on how to contact each rating service will be found below (including some useful links). The chart at the end of this report compares the ratings given by each agency. To obtain the latest ratings, please check with the appropriate rating service.
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January 2020
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