There has long been this mistaken yet commonly-held belief that life insurance policies are basically all the same. For many people, there’s no need to compare life insurance policies since they all will provide the protection you need.
For others, they tend to compare life insurance policies on just one thing: the price, or premiums in this case. Basically, life insurance is treated like any other commodity, in which how much is to be spent, or saved, with the policy is all that matters.
However, we must keep in mind that life insurance is not just a commodity. It is a product designed to give us and our loved ones a form of assurance and protection in case something bad happens to us.
And, for a product that has something to do with our lives is involved, we should give a bit more thought in choosing something like life insurance. Of course, each individual has their own different needs, and the kind of protection they need is no exception, whether they realize this fact or not.
Another important thing to note is that even between the same insurance products from the same insurance company, each insurance policy provides certain details that deserve a bit more scrutiny than usual.
Taking note of these differences in mind, it is important that your life insurance policy is able to address your specific protection needs.
Points of Comparing Life Insurance Policies
With so many life insurance products and variables to consider, it can be confusing for anybody who finds themselves comparing life insurance policies and determine which would fit their needs best. Here is a handy guide that will help you in comparing the different life insurance policies being presented to you:
Life Insurance Premiums
As noted here earlier, the premium is one of the first, if not the first, point of comparison any person shopping for insurance would look at. While it is the usual inclination for a person looking for life insurance to gravitate towards a policy with the lower premiums, one has to be mindful of what you are paying for with your policy. If you are looking for additional benefits or protection in your policy, you must be prepared to pay extra to have them added in.
Another thing to consider is the structure of how you will pay such premiums. Depending on your policy, you either pay a level premium, in which you pay a fixed rate each time you pay for your policy, or a stepped premium, in which the premiums increase as you get older.
Stepped premiums are usually inexpensive at first when compared to level premium, but they can become much more costly over time. This is something to keep in mind, especially if you are conscious about your insurance budget.
The length of time the policy is in force is another important factor that people take into account in comparing life insurance policies. For many, this would mean the number of years you will be covered by insurance. This could be for a certain term or for lifetime if you’re choosing permanent life insurance. We have a separate post here on whether you should go for a permanent or term life insurance.
But there is another variable that people tend to overlook, and that is the grace period. This is the period in which a policy remains in force in the event that payment for the policy has lapsed.
Depending on the insurance company’s policy and the insurance product, the grace period can last for as short as 1 day to as long as 30 days. This is very important to note in the event that you miss your payment for the policy for some reason to avoid losing coverage.
Life insurance policies have different payment terms, depending on the type of life insurance and life insurance product. Term insurance policies usually entail regular payment of your policy until the end of the term.
Permanent life insurance policies, on the other hand, have different payment terms, depending on the insurance product. Some permanent life insurance policies, particularly whole life insurance, entail regular payment for life. Other permanent life insurance policies, like universal life insurance, require payment for a certain number of years, but they can also require higher premiums as well.
Those who are shopping for insurance are usually attracted with the death benefit their beneficiaries they receive in the event of death. But of course, higher death benefits would require either higher premiums to be paid or getting just what is called “vanilla insurance” or just pure protection.
One thing also to be mindful is there are some insurance products that provide decreasing death benefits over time. This is more common with decreasing term insurance policies which some people use to cover a loan or other financial obligation that will decrease in value over a given period.
Maturity benefit is defined as the payout you receive after your life insurance policy “matures”, meaning your life insurance policy coverage ends after a given period. That is assuming that you are still alive at that period and have been able to maintain your policy throughout given period without missing any premium payment.
On a base level, the maturity benefit’s value is the same as that of the death benefit. However, maturity benefits can end up being higher thanks to the increase in value it could accumulate over time.
Not all insurance products have this benefit though. Term insurance usually doesn’t have such benefits but there are certain term insurance products that offer maturity benefits through a return of premium. Maturity benefits are more common with permanent life insurance products in which such benefits are made possible by the insurance company investing a portion of the premiums paid for growth.
The nature of such benefits would vary depending on the insurance product. For whole life insurance products, such premiums are placed in low-risk investments so the maturity value is more “assured” though the returns are not as high. For universal life insurance products, however, the premiums can be placed in higher risk investments like mutual funds, thus offering possible greater returns but with higher risks involved as well.
Apart from the death benefits, each individual has different protection needs, whether it is for accidents, hospitalization, or critical illness. For that, different insurance companies offer riders, which are add-on benefits that you can attach to your life insurance policy. Of course, these riders increase the premiums you will pay, so it’s important to determine which added protection you need.
Keep in mind as well that even with different life insurance products of a single insurer, there are certain products that would not allow for the inclusion of specific riders. Also, some riders may have a set minimum and/or maximum values so there is the risk that your riders may not provide the added coverage you were looking for in the first place. This is something to check carefully as you are comparing life insurance policies.
While it is true that life insurance provides you and your family the needed coverage and protection in the event of an early death, it is important to keep in mind that not all such incidents will be covered by your life insurance policy. There are certain incidents an insurer would deem too costly or risky to be covered by insurance.
Each insurance company has its own guidelines on what it considers as exclusions, ranging from incidents intentionally committed by the insurer to those caused by war or nuclear hazards. There is also the matter of absolute exclusions, in which the insurer may deny coverage for one reason or another even if the incident in question is, under normal circumstances. Thus, it is very important that you carefully look at your insurance policy with regards to these exclusions as to what they entail and talk with your insurer or agent.
Final Thoughts on Comparing Life Insurance Policies
Knowing all these different factors that make up each insurance policy should help you make a more informed decision in choosing the right insurance policy for you. Admittedly, there are many factors for one to take into account, which is why it is important for you to carefully review each insurance policy and know what you will be getting with each one.
And if you find yourself needing help or guidance with comparing life insurance policies, never hesitate to get in touch with an independent agent who can help you understand what each policy entails and guide you to making a sound decision in choosing the right insurance policy that addresses your protection needs.
Ready to start with a quote? Get yours today!