If you’re shopping around for life insurance, you may find the process to be confusing and frustrating. You’re not alone—life insurance can be an extremely complex product, one that confounds consumers across the nation. However, many families discover that term life insurance is a relatively simple policy that fulfills all of their insurance needs.

Term life provides protection for a specified number of years, ranging anywhere from one to 30 years. If the policy holder dies sometime within the term, their family receives a death benefit. These policies are less expensive because they are designed solely for protection. Many people choose term insurance because they figure the need for life insurance will decrease as they get older. Term insurance is also good option for those who want to protect their children until a certain age.

Although this may seem fairly simple, there’s a lot more to term life insurance. Here are five things you should keep in mind as you shop around for a term life policy:

1. Figure out your objective

Before you start shopping around for a term life policy, or any life insurance for that matter, it’s important to ask yourself what you’re trying to accomplish. Depending on your goals, term insurance may or may not be right for you. Most people who buy term insurance outlive the policy’s term—which means they never receive the payout. However, if you’re just looking to protect your family and ensure your debts are paid off should you die within the next few years, a term insurance may be the perfect solution.

2. Understand group vs. individual

There are two different types of term life insurance policies: group and individual.

Group term life is offered by most companies as an employee benefit. Typically, all you have to do to apply is complete a short health history questionnaire. Unlike individual plans, most group plans don’t require a physical exam. If you qualify, the premiums are automatically deducted from your paycheck each month.

With individual life policies, you apply for coverage on your own, and you are the owner of the policy. Typically, you have to undergo a medical exam and provide a detailed medical history to apply for an individual policy. You may also have to sign an agreement that gives the insurer permission to examine your medical records and perform a background check on you.

Although the process of obtaining an individual life policy may seem more complicated and somewhat invasive, these policies offer a lot of advantages over group policies. For one, an individual policy is yours to keep. If you lose your job or decide to switch employers, you don’t have to worry about losing your life insurance protection. Additionally, individual policies usually offer what’s called “level premiums.” This means your premiums will not increase throughout the duration of your policy (which is usually 10, 20 or 30 years). Whereas, rates on group policies usually increase every 5 years.

Individual policies are also much more flexible than group policies. For example, if you decide to upgrade your policy or switch to permanent policy, you’ll have more options available to you if you own an individual policy.

3. Devise an end-of-term plan

As your policy nears the end of the term, you have a few different options, including the following:

• Let the coverage expire: If you feel that life insurance is no longer necessary—because your children are grown and/or your debts are paid off—then you may just want to let your policy expire.
• Keep the policy: If you still want coverage, you may consider keeping your policy—but it’s important to realize that your premiums may jump significantly if you extend the term. However, this may be your only choice if you still want coverage but know you can’t qualify for a new policy due to health problems.
• Get a new policy: If you are still healthy, you may decide to apply for a new policy to avoid an increase in premiums on your existing policy.
• Upgrade: If your term policy includes a “conversion privilege,” you can upgrade it to a permanent policy.

4. Know how to upgrade

If you choose to upgrade your term life policy to a permanent policy, you’ll have to read the fine print on your term contract. If your policy includes a conversion privilege, it may contain a time limitation. For example, once you reach age 70, some policies may not allow you to convert to a permanent policy. However, other plans allow you convert any time during the term of the policy.

You should also find out what kind of policy to which you can convert. While some term policies allow you to convert to any kind of permanent policy (including whole life, universal life or variable universal life) others may force you to convert to one specific type of policy.

Finding the ideal life insurance policy can be a daunting task. However, as long as you keep these tips in mind, you should be able to locate the best policy that will give you and your family peace of mind.

The goal of life insurance is to ensure your family is financially protected if something were to happen to you. Since your loved ones depend on your income, they could find themselves in serious financial stress if that cash flow was suddenly cut off.

Unfortunately, too many consumers mistakenly believe that they have enough life insurance to adequately protect their loved ones—when in actuality, they are severely underinsured.

Just look at the numbers: Americans have a combined $10 trillion worth of life insurance coverage, according to a 2008 study by the American Council of Life Insurers. That may seem like an incredible amount of insurance—however, it’s still not enough. As a matter of fact, $10 trillion represents only 72% of our nation’s combined annual income, which totals a whopping $14 trillion.

In other words, thousands of Americans don’t own enough insurance to cover even one year’s salary. These people may have some life insurance, but it’s simply not enough to ensure their family can maintain their current standard of living.

Delving deeper than the lump sum

When you look at your coverage as a lump sum, it may seem like a lot of money. Therefore, you may assume there will be plenty to protect your family in the event of your death. However, it’s important to consider that lump sum in relation to your annual income.

When determining whether or not you have enough insurance, you may want to ask yourself a few important questions: How much do I earn each year? How many years would I want my family to be covered if something were to happen to me? How much is going to be enough to cover all of their expenses? What standard of living do I want them to have?

The answers to these questions may lead you to a realization: that you don’t have enough life insurance.

Calculating the right amount

There are a few different ways to calculate the amount of life insurance you need to adequately protect your family. Some insurance experts say you should simply multiply your annual income by three times while others say you need at least eight times your annual salary.

However, many professionals say this “income multiplication” method is not accurate enough. Because each family faces a unique set of circumstances and needs, you may want to consider some factors other than just annual income. Figuring out the right amount life insurance requires a comprehensive evaluation of your financial goals, debts, investments and the quality of life you want your family to have.

Here are a few things to take into consideration:

• Monthly expenses: Tally up all your family’s monthly expenses, including your mortgage payment, car payments, utilities, groceries, food, clothing and any other costs. The death benefit on your life insurance policy should be able to cover these expenses for at least a few years. This will ensure that your family will not undergo a decreased standard of living if you were to die.
• Surviving parent’s income: If something were to happen to you, would your spouse need to work to support your children? This may be a problem if you have young children or a disabled child who needs extra attention. If taking a job could interfere with your spouse’s ability to care for your children, you’ll probably need more life insurance. This will ensure that the surviving parent doesn’t have to work—or at least not until your children are older.
• College tuition: Do you want to fund your children’s college education? If so, you should also factor this into your life insurance calculation. It would probably be difficult for the surviving parent to pay college tuition on a single income.
• Factoring in inflation: Don’t forget to consider the cost of inflation. You can expect cost of living to increase about 4% to 5% each year. That means if you purchased a life insurance policy many years ago, the death benefit may not be enough to pay for today’s cost of living—let alone tomorrow’s.

Figuring out how much life insurance you need to protect your family is a complex process that involves considerable research and thought. If you’re struggling to figure out how much life insurance is enough, you may want to meet with an expert. A financial advisor or insurance agent can help you determine how much insurance you need and what you can realistically afford.

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If you’ve purchased life insurance to help protect your family in the event of your death, good for you. However, you probably shouldn’t pat yourself on the back just yet. Why not? Because unless you have the appropriate amount of life insurance, your family isn’t fully covered.

According to a 2008 study by LIMRA International, a whopping one-third of U.S. adults do not have life insurance. This is certainly a troubling statistic, but there’s another trend that’s perhaps even more disturbing: countless families who do have life insurance do not have enough.

Americans have a combined $10 trillion worth of life insurance coverage, according to a 2008 study by the American Council of Life Insurers. While this may seem like an astounding amount of insurance, $10 trillion represents only 72% of our nation’s combined annual income, which comes out to a whopping $14 trillion. While uninsured families are well aware that they have no coverage, most underinsured families don’t realize it until it’s too late.

Even if you have life insurance, your family could be at serious financial risk if you don’t have the proper amount. If you’re not sure whether you have enough coverage, it’s time to take a second look at your insurance policy.

Pin-pointing the magic number

Figuring out how much life insurance you need is no easy task. There are a few different ways to calculate the appropriate amount of life insurance you need. Some insurance experts say you should simply multiply your annual income by three times while others say you need at least eight times your annual salary.

However, many advisors point out that the income multiplication rule of thumb may not be the best the calculation. When it comes down to it, the amount of life insurance you need depends on your family’s unique situation, including many different factors.

To figure out the right amount, you may want to ask yourself a few important questions, including:

• If I were to die, how much money would my spouse need to continue paying our mortgage?
• Would my spouse be able to work or would he or she need to stay home with the children?
• If my spouse were to work, would he or she need to pay childcare expenses?
• How will my children be able to afford college tuition?
• Will my spouse be able to afford making contributions to a retirement account, ensuring a comfortable retirement?
• How will inflation impact my family’s finances in future years?

Once you answer all of these questions, you’ll be able to make a more informed decision about the amount of life insurance you need. Of course, you’ll also want to review your coverage each year. If there have been changes in your family (your children are now grown and no longer need financial support) or changes in your overall financial situation (you now have a higher-paying job or a lower mortgage), you’ll want to adjust your life insurance coverage accordingly.

Purchase the right policy

There are two basic types of life insurance policies: term insurance and cash-value insurance. Term life covers you for a specified amount of time, anywhere from one to 30 years. These policies are less expensive because they are designed solely for protection. Many people choose term insurance because their need for life insurance will decrease as they get older. Term insurance is also good option for families who want to protect their children until a certain age.

Cash-value life insurance covers you for your entire life. These policies act as both an insurance plan and a savings mechanism. Because the insurance company actually invests some of your premium, permanent life has the potential to accumulate cash value on a tax-deferred basis.

Eventually, you can borrow money from a cash-value life policy. Because loans are usually not considered income, you probably will not face any income tax liability for these withdrawals. However, whatever you withdraw will be subtracted from the ultimate death benefit.

Calculating how much and what type of life insurance you need is a complex process that involves a lot of research and thought. You may want to meet with a financial advisor or insurance expert, who can help you determine how much insurance you need and what you can realistically afford.

When you begin the process of estate and financial planning, there are many decisions you need to make. Even the most basic of decisions, like the type of life insurance coverage you will buy and what family members to cover, can be overwhelming. The costs associated with each decision you add up and may force you to sacrifice coverage for affordability. If you know the options available to you, you can simplify your planning and get all the benefits you need without exceeding your budget.

Often, the first step in financial planning involves the purchase of two life insurance policies—one covering you and another for your spouse. Depending on your age, the amount of insurance you need, and your health history, you may be concerned about the combined cost of the premiums for the two policies. Luckily, the purchase of one life insurance policy that includes a spousal rider may be an inexpensive solution.

Riders are added benefits that you can attach to your life insurance policy. They can also make a family policy much easier to afford. A spousal rider will pay a benefit on the death of your spouse as long as it occurs prior to, or at the same time as your own. The premium for the rider could be less than a comparable individual policy for your spouse.

With a spousal rider, the coverage of the named spouse ends after the death of the primary insured. This means that the surviving spouse may be forced to get their own insurance policy at an older age and while possibly in worse health than at the time of the original purchase.

You may also be considering a final expense policy for each of your children. Instead of buying separate policies for the children, each with their own premium, why not think about buying one policy with riders to cover the rest? You can add a child rider to cover your children and further expand the umbrella of coverage your single policy provides.

Children can be covered on a child rider until they reach the age of 18. There may be an additional period of time they can be covered if they are full-time college students. As with the spousal rider, the rider will only pay a benefit if the child dies before or simultaneously with the primary insured.

If you are concerned about an accidental death causing undo stress to your family and creating additional unexpected costs, you might consider adding an accidental death benefit (AD&D) rider to your policy. The AD&D rider provides an extra death benefit should your death occur as the result of an accident. Be sure to read the terms of the rider carefully to understand what the insurance company considers an accidental death. Illnesses, biological events and other causes of death may not be defined as accidents by the insurance company and will not be payable.

Life insurance can be customized to suit the needs of any person. With the use of riders you can end up with an affordable policy that covers a wide range of events and requires just one premium payment each year.

After several years of stock market declines, many people have quickly realized their tolerance for risk is not as high as they originally believed.  If you find yourself in the same boat, you might be wondering where can you set aside money that is more safe and secure than stocks.  If you already have a term life insurance policy, or have been thinking about applying for one, you might want to consider a whole life insurance policy.  Unlike term life insurance, whole life insurance gives you coverage for your entire life, along with the opportunity of building cash value.  Whole life insurance allows you to save a portion of each premium payment into a tax-deferred, low-risk portfolio managed by an insurance company along with the opportunity to borrow against your policy at anytime, while still protecting your loved ones.

With whole life insurance you will get coverage for your entire life.  Your beneficiaries will be protected and your policy will stay in effect regardless of health issues.  You won’t have to worry about affording the premiums as you get older because the premiums will remain level throughout your life (depending on the contract).  These advantages alone make whole life insurance a wise choice, but a whole life policy has more to offer.

Having the advantage of cash value makes whole life insurance an even better choice.  After you take out your whole life policy, a portion of each premium payment goes towards your cash value.  As each year passes, the percentage of each premium payment placed into your cash value increases. Your cash value is invested in low-risk instruments and as with most insurance companies, there is a minimum guaranteed return that you will receive regardless of what happens in the market.  Having the advantage of cash value not only gives you the comfort of financial security, but you will gain borrowing power against your cash value.

As with many savings opportunities, there are tax advantages.  With whole life insurance all of the return on your cash value grows tax-deferred.  This means that you will not have to pay any taxes on what you earn until you decide to withdraw it.  Not only will your money stay tax-deferred until you decide to use it, but you can also choose to borrow against it.  Incidentally, the interest rates for your whole life insurance policy loan are usually lower than current market interest rates.  All of these benefits are in addition to supplying your loved ones with the security of an income tax free death benefit if you choose to keep your whole life policy inforce.

Choosing a whole life insurance policy will give you the peace of mind and security of life long protection.  If you currently have a term life insurance policy, we can show you how simple it is to convert to a whole life policy.  If you don’t have any life insurance coverage, now is the best time to get started and start letting your insurance premiums work for you!