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How to Choose Life Insurance Effectively

How to choose a life insurance policy

Written By Doug Mitchell

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA.  Doug has spent close to 30 years in the insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health.  Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

Holly Mitchell  &

Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.

Rob Pinner   &

Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.

Louis LaBash

Results-driven and innovative life insurance professional with 30 plus years of life insurance industry sales and marketing experience. Recognized as a pioneer in the field, leveraging phone and internet channels to exceed personal sales of over $100 million during the first decade of the 21st century. Creator of a highly effective intuitive IUL life insurance sales software that facilitated the sale of millions of dollars of indexed universal policies by numerous life insurance agents. Proven track record as a Managing General Agent (MGA), Life Agent, IUL Life Insurance Sales Software developer, and leading-edge creator of insurance marketing tools, educational content, and delivery systems.

Table of Contents

Understanding the Need for Life Insurance

Life insurance is a cornerstone of financial planning, yet it often goes undiscussed due to its association with dying. However, knowing how to choose life insurance is a pivotal decision that can offer peace of mind and financial stability for those you leave behind. If your life insurance knowledge is lacking or you are just now exploring your options, we can help.

Evaluating Your Life Insurance Needs

When contemplating how to choose life insurance, first recognize its role for your beneficiaries. Life insurance is not for you but for those you care about. It covers final expenses, pays off debts, and replaces your income for your family’s living expenses. A genuine need for life insurance is almost always present, whether for personal debts or future estate taxes that could burden your family.

How Much Life Insurance is Sufficient?

The amount of life insurance you choose is deeply personal. While the ten-times-income rule is a standard benchmark, it’s just a starting point. Typically, the amount of coverage should take into account your debts, your income, and providing for your dependents should you die before your time. A modest policy may suffice for single individuals, whereas families or business owners may require a more substantial safety net.

Once you’ve established the need for life insurance, the next most important consideration is how much. Unfortunately, there’s no easy answer to this question. It will depend on personal circumstances, including your financial obligations.

Let’s look at some common scenarios: 

Single Person with No Dependents and Minimal Debt

If this describes your profile, you may need sufficient life insurance to cover reasonable burial expenses and any debts you might have that you own with someone else. Other than that, you may only want to have enough insurance to enable your loved ones to better cope with your death. A smaller policy of $50,000 or $100,000 may be sufficient.

Married, Self-Supporting Spouse, No Dependents, and Significant Debt

True, your spouse may not need life insurance proceeds to provide for their support. But at a minimum, you want to provide for final expenses, adjustment money, and certainly enough proceeds to pay off any debt you have. For example, say you and your spouse own a home with a mortgage. You’ll want to be sure your life insurance is sufficient to pay it off. So your spouse can stay in the home comfortably after your passing.

Married, Non-Working Spouse, Two Dependents, and Significant Debt

This type of profile will generally require the largest amount of life insurance. You will need to cover final expenses, income replacement, and personal and family debt payoff. This is where the 10-times-your-income rule of thumb comes into play. You’ll certainly want to start with a lot of life insurance if your children are young and need to be provided for over many years. You may be able to adjust that downward if your children are approaching adulthood, especially if your spouse is planning to reenter the workforce.

Business Owners, with a Significant Amount of Business Debt

Many self-employed people don’t consider this a life insurance-related obligation.But if you own a business with substantial debt, you may want to ensure that your life insurance policy will provide funds to pay off those debts upon death. After all, once you’re gone, you won’t be there to help cover the obligations. By having sufficient life insurance to pay off any business debts, you can be confident you are leaving your business partners or family members a debt-free business upon your death. Suppose it is for the benefit of business partners. In that case, it will make it easier for them to continue the business without your contribution to the business.

If it’s for family members, paying off business debts will make it easier for your loved ones to sell the business once you’re gone. It’s common for business owners to maintain one or more life insurance policies to pay off business-related debt. In that case, the amount of life insurance you’ll need in that policy should roughly match the amount of debt the business owes.

What is the Best Type of Life Insurance?

The most basic types of life insurance are term life, universal life, and whole life.  Here is a quick look at all three.

Term Life Insurance

Term life insurance is a policy that provides a death benefit with no cash accumulation feature. That’s a major reason why it is so much less expensive than whole life insurance. And for that reason, you can afford to purchase a much larger policy. The disadvantage of term life insurance is the time limit. A typical term life insurance policy will run between five and 30 years. At the end of the term, you will generally be given the option to renew the policy at a much higher rate.

Universal Life Insurance

Universal life insurance is a permanent policy that offers death benefit protection and cash value accumulation.  One of the more distinguishing features is the flexibility of premiums and death benefit.

Whole Life Insurance

Whole life is permanent life insurance. This is because it cannot be canceled except for nonpayment of the premiums. It features a fixed premium and death benefit. And also provides a cash accumulation feature that adds something of an investment provision to the policy. The disadvantage of whole life, however, is that it’s much more expensive than term.  In fact, the premium for a whole life insurance policy will typically be several times that of an equivalent amount of term life insurance.

Selecting the Right Type of Life Insurance

When mastering how to choose life insurance, understanding policy types is crucial. Below is a comparison chart that outlines the key features of Term Life, Universal Life, and Whole Life insurance policies to aid in your decision-making process:

Feature Term Life Insurance Universal Life Insurance Whole Life Insurance
Coverage Duration Temporary (e.g., 10, 20, 30 years) Flexible, Permanent Permanent
Premium Cost Lowest cost Moderate cost Higher cost
Cash Value No Yes Yes, with guaranteed growth
Investment Options No Yes, with various investment options None
Fixed Premium Yes Flexible Yes
Death Benefit Fixed Flexible Fixed
Flexibility in Premiums No Yes No
Potential for Growth No Yes, based on market performance Yes, but at a guaranteed minimum rate
Loan Options No Yes Yes
Suitable for Estate Planning Less suitable Very Suitable Very suitable

Ready to find out which life insurance is right for you? Use the life insurance calculator available on this page to see the prices you will pay for different amounts and lengths of life insurance coverage. Enter your date of birth and the amount you want an estimate for to get an instant quote and take the first step toward securing your family’s future

The Optimal Timing for Purchasing Life Insurance

The prime time to choose life insurance is invariably “now.” Youth and health work in your favor, securing lower premiums. Waiting will mean higher costs and the possibility of becoming uninsurable. Employer-provided life insurance is a valuable benefit, but it’s often insufficient and only available while you are working for that employer – another reason to lock in an individual policy.

Choosing the Best Life Insurance for Your Needs

Choosing life insurance can be straightforward with the proper knowledge. Understanding your needs will help in which policy you choose and how much life insurance you need. Using our life insurance calculator on this page, you can compare multiple quotes from top life insurance companies. We are here to help you navigate the process. We are independent brokers and can help with any of the top life insurance companies

Choosing the best life insurance policy is easy when you know what is available and how the policies work.

Picture of Doug Mitchell, CLU

Doug Mitchell, CLU

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA. Doug has spent close to 30 years in the life insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health. Some other notable items about Doug: Top of the Table Million Dollar Round Table member (MDRT). (MDRT is a global, independent association of the world’s leading life insurance advisors) | Premier Partner with Lincoln Financial and Cabinet Member | Served two years as President of the Auburn/Opelika Association of Financial Advisors | Life Millionaire status at Horace Mann Insurance Company and was awarded the Life Agent of the Year Award | New York Life, Executive Council Member | Currently serves as President of Ogletree Financial, a life insurance General Agency. | Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

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