Best Life Insurance Policy

OK I can't tell you what the best life insurance policy is! Don't you hate it when someone says that? But it's true. That's because the best life insurance policy for you is not the best one for me and vice versa.

I can however talk about some guidelines that do apply to everyone and you can ensure that you follow them. So back to basics. Why do you buy life insurance in the first place? The reason that you buy life insurance is to continue the financial quality of life for your loved ones that they are living right now should you die prematurely. So really life insurance is a way to replace your income when you are no longer around. Frankly, if you don't have dependents (single or grown or divorced) or if you have retirement payments that come from a plan that continues after your death then you don't need life insurance. Why do your children need life insurance once they are adults and earning their own living.

Lets assume that you do , in fact, need life insurance - then what kind? And why?

I may shock you here because I believe that most life insurance needs are best served by term insurance. What is term insurance? Term insurance is simple, no frills life insurance.The term policy bears an annual premium for a specified period of years and the policy will pay your named beneficiaries the total amount of your policy in a lump sum. At the end of the term, you can renew your policy or look for one with a different term and a different face value. Term insurance is very straightforward, extremely easy to understand and is usually the cheapest cover you can buy.

A second category of life insurance is cash value insurance. The life insurance companies and their agents like to sell cash value insurance because they can add all kinds of bells and whistles to the terms, they get to keep more of your money and for them it's much more profitable than term. The essence of cash value coverage is that you get to "share" in the value of the policy getting a "cash value" during the life of the policy. As a form of saving or as an investment vehicle, cash value insurance is a very poor choice. Instead make a savings plan that has the built in discipline of saving and invest the savings in a balanced investment program. The latter should be a reputable plan serviced by professionals unless you are a financial expert with investment experience in which case you can manage it yourself. One feature of a cash value policy is that you can borrow against the policy value at reasonably low rates. If you have good credit you should have borrowing power against your other assets that allow you to do this.

To make a valid comparison of a cash value policy against other alternatives takes a very sophisticated financial analysis that is not easy to administer. This uses a technique known as discounted cash flow analysis. You can get help trying to do this yourself on various web sites but I suggest if you want to do it, get in touch with your tax accountant, financial planner or other professional who is practiced in performing this kind of financial analysis routinely. Don't ask the person trying to sell you this insurance to do it for you!

If you are convinced and decide to go for the term life insurance policy, make sure that your policy can't be canceled and is renewable. The renewability option should be open ended and not subject to re-examination of your current or recent health. Don't be shy, you're not crazy looking for these features before you buy.