What To Consider When Purchasing Life Insurance?

11/30/2015

Nearly all cash value life insurance is now priced-to-the market. This means that the actual value of a policy at any point in time will be different than the value that was projected in the policy illustration. Consequently, the overall premiums paid over the life of the policy may be much higher than was originally expected by the purchaser.

Life insurance policies can be very flexible in their design and life insurance planning concepts can be complicated with exotic features. These complications require you to be very diligent when planning and purchasing life insurance and monitoring your purchases. Following is a checklist to help you do just that.
  1. As part of your personal finance plan, review your family's financial circumstances to determine your objective life insurance needs. This will result in determining an approximate amount and overall design.
  2. Review any existing policies that you and other family members own.
  3. Analyze whether term or cash value life insurance is most appropriate. If life insurance is needed is for family protection, term may be most appropriate; if it is needed for estate planning need, term insurance is generally not useful. (If term insurance is selected, steps 4, 5, and 6 can be skipped).
  4. Identify purchase design options for cash value life insurance (for example, increasing or level death benefits, continuous or vanish premium pattern), and determine which are most desirable for your family's circumstances.
  5. Analyze the most appropriate form of cash value life insurance for your family's circumstances: universal life, whole life, or variable life.
  6. Identify a range of pricing assumptions for cash value policies. If a specific death benefit is to be funded, select pricing assumptions to initially set a premium amount.
  7. Identify all policy riders to select from.
  8. Review policy every two years, both in terms of policy performance and in terms of changing family needs and circumstances and your overall personal financial plan.

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