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Life Insurance: Is the Lowest Rate the Best Deal?

July 17, 2012

There’s a lot of focus on how much premiums are when it comes to choosing insurance. What gets lost in the shuffle is the importance of how an insurance policy suits your needs. This is especially vital when it comes to life insurance, where a low rate doesn’t necessarily mean you have the coverage you need. While finding a policy that fits your budget is important, so is choosing the right policy to provide for your loved ones in the event of a tragedy.

Low Price, Low Coverage?

The cost of a life insurance policy isn’t necessarily directly in line with the amount of coverage you’re getting for that premium. That’s because the cost-to-coverage ratio depends on a couple of factors, the biggest of these being the type of policy you are buying.

You can get a lot of coverage for a low premium by selecting a term policy with a shorter term. Because the insurance company is only agreeing to cover you for a certain time period, they are cutting down on their risk. The shorter that time period, the lower the risk that you will die during that time. That means you’re being charge a lot less for the coverage.

While choosing a lower death benefit amount will as a general rule mean you will pay a lower premium, it can still change quite a bit based on the length of the term. When it comes to whole, or universal, life insurance policies there is a more direct correlation between coverage amount and premium – but there are still other factors that go into the calculation of the rate.

Getting Value For Your Money

You want to choose the policy that will cover all of your loved ones’ needs in the event of your death, but you also want to find a premium you can afford. This is where shopping around, comparing life insurance quotes, and also comparing options comes into play.

Simply put, the cheapest life insurance policy isn’t always the best deal. Let’s say you get a quote for a five year term policy for $500,000 worth of coverage. For the same amount of money, you could select a universal life insurance policy with half that amount in the death benefit. If you die in those five years, then you chose the right policy. If not, you are now five years older, your health may have changed, and you might find yourself facing higher premiums to extend that term policy. That means that the universal policy, which lasts throughout your life, may have been the better value in the end.

That doesn’t mean the term policies don’t have their place. There are certain times in your life when you need more coverage, such as when you are raising your children. You need to provide for them, so you need increased coverage, and a term policy that lasts for those years is great way to get it at a lower price.

Getting the Coverage You Need

Providing for all of the needs of your family in the event of your death is what life insurance is intended to do. That can’t always be done for the lowest premium, nor would you want to choose a cheaper option that leaves your family without the means to cover your debts, continue living in their home, and pay for things like college or university for your children.

The first step to getting the right coverage is to use a life insurance calculator to determine how much coverage you need right now, and also to look forward to how much you might need later, when your kids have left home. Once you know how much coverage you need, you can start comparing quotes and options that get you that coverage at the best price.

For many people, a combination of a permanent (whole or universal) and a term life insurance policy can make getting the coverage they need affordable while still planning for their long-term needs. The important thing is to go in with a good understanding of what those needs are so that you are comparing quotes on the coverage you really need and not just the cheapest available policy.

Life insurance needs are very personal. Although there are a lot of companies advertising low rates on life insurance policies, it’s important to do your research before you buy simply based on a cheap premium. Having some coverage is of course better than having none, but getting the right coverage in place for the long-term is always a better choice.

  • tom schofield

    u life ins? … how does that work out? is it like whole life ins?

  • http://www.facebook.com/sammy.castillo.50746 EL Chico

    Universal life insurance is a hybrid policy that has Life insurance(whole Life) and Investment inside of the insurance pol .. Money grows tax differed also if a death benefit is paid out the investment is paid with no tax . Not everyone is a candidate for this product if you just need coverage and are looking for the cheapest Whole life policy then Universal may not be the best option. If you are looking for a place to invest that is safe and grows tax defferedthen UL is great