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What type of coverage do you need?

When it comes to life insurance, most buyers simply pick a number for the desired death benefit and go through the motions of the application process. There isn’t much thought as to the amount or type of insurance best fits the bill.

Term insurance is the most popular type of life insurance bought in the US today. Term refers to life insurance that is in force for a particular period of time, for an agreed upon premium. Annual renewable term allows the insured to maintain the policy for as long as the contract states as long as the annual premium is paid. Level premium term is coverage that lasts for a specified period for a specified premium. Most common are 10, 20 and 30 year term coverage.

For many insurance needs, term insurance is the best way to go. The premiums are generally small compared to the death benefit, and affordable to businesses and families. There are a few precautionary measures to consider, however.

You need to ask yourself about the likelihood that you’ll want coverage after the selected term period expires. Most annual renewable and level premium term contracts do have extending language built into the contract, but in many cases the premiums skyrocket and can suddenly become unaffordable for the insured after the original term has passed. Also, see if the policy has conversion language to a permanent type of policy where you could maintain the coverage for your entire life if desired.

Permanent insurance includes whole life, universal life and variable life insurance. The cost of permanent life insurance is initially much higher than term coverage. Agents claim that over your entire life, the huge up-front costs turn out to actually provide the lowest total cost of coverage.

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Posted 11:00 AM  View Comments

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