Tips for Finding the Best Insurance

If you want to make sure your family is financially secure no matter what happens to you, life insurance is the way to go. However, making sure you have the right policy for your needs can be a lot of work. Before you choose a life insurance policy, it's important to research your options. If you need help picking the best life insurance for your needs, here's what you should be looking for.

Types of Life Insurance

When you really get down to the specifics, there are a lot of different types of life insurance. However, most people are only concerned with two types: term life insurance and whole life insurance. While both of these types of coverage have their benefits, it's important to make sure you get the right once since they're so different.

With term life insurance, you're purchasing a policy that lasts for a set number of years. If you happen to die during this term, your death benefit (a set amount of money you're owed by your insurance company) will be paid to your family. If the term expires before you die, you have to purchase a new term life insurance policy. The big benefit to term life insurance is that you pay less each month, but an expiring policy can be a hassle for some people.

Whole life insurance is similar to term life insurance except it doesn't expire. Instead, you simply purchase one whole life plan that lasts as long as you continue paying your premium. In addition to that, whole life insurance has a cash value which accrues as you pay your monthly premium. However, fees, taxes and interest rates can make this a bit complicated for most people.

Dividend Options

A whole life insurance policy is designed to increase by a set minimum amount every year. This is based on the worst financial case for the company, however, so it can vary quite a bit. If the company did better than expected at the end of the year, it will pay policyholders a dividend. The tricky part about this is figuring out how you want to receive your dividend and what you want to do with it. There are five common dividend options:

• Receive the dividend as a cash payment
• Put your dividend toward your premium
• Put your dividend toward paid-up additions
• Leave your dividend in the account to continue accruing interest
• Use the dividend to buy term life insurance

The first option, receiving the dividend as cash, is the most common option. This is a simple way to put some money back in your pocket without having to worry about putting the dividend toward your premium or additional life insurance. Plus, dividends aren't taxed when you choose to receive them as cash.

Since you owe a premium every year with a whole life insurance policy, putting your dividend toward the premium is never a bad idea either. If your dividend is larger than your premium or you only want to use part of it toward your premium, you'll need to choose a second option as well.

If you want to invest in the future and make sure you're eligible for dividends, you might want to invest in paid-up additions (PUAs) with your dividend. PUAs help you build a larger death benefit now instead of doing it in the future when it costs more.

In some cases, you might want to leave your dividend in its account to continue accruing interest. For most people, one of the above dividend options is a better fit. Finally, you can use your dividend to purchase term insurance, providing your family with a significant death benefit should you die during the term. If your dividend is larger than the cost of term life insurance, you'll need to select a second option.

Understanding life insurance can be tough, but it's not impossible. As long as you understand your dividend options, you're doing great.