The Facts of Life Insurance

As the saying goes, the best defense is a good offense. And when it comes to buying Life insurance, the best offense means self-education. Arming yourself with knowledge of insurance terminology is a good start. But the most important money-saving resource is your ability to comparison shop.

With literally hundreds of insurance companies vying for your business, with each offering a wide variety of plans and prices, you might be in for a little legwork. But don't worry; you'll be rewarded with better coverage and money saved.

It is important to determine what type of insurance is right for you. In general, Term Life insurance offers more coverage for less money than Whole Life insurance. Some financial planners promote Whole Life insurance policies with cash value components because they force you to save money. Others recommend you buy term insurance for the cheaper premium, and then invest the money left over in mutual funds or other investments.

If you choose Whole Life insurance, try not to consider the cash value of your Life insurance as a traditional investment. This is because any partial withdrawals or loans you make on the policy will reduce your death benefit. Also, there are tax implications to using that cash, so you could be looking as a hefty tax bill as a result.

Let your fingers do the shopping. Consider the time you spend researching insurance policies online as an investment. Of course, not every insurance quoting service will give you the best quote available for Term Life insurance. Remember, the more complete the information you supply, the more accurate your online quote will be.

Know how much too much, or not enough. One of the most helpful tools for figuring out how much Life insurance you need is by using this simple formula, called a needs analysis: Short-term needs + long-term needs - resources = how much Life insurance you need.

But it's not enough to complete this analysis just once: Financial experts suggest reassessing your needs every three years, or whenever you have a major life change. For example, a new baby, a financial windfall, even paying down your mortgage, can all affect your needs requirements.

If your needs do change, it doesn't mean you need to buy an entirely new insurance policy. Consult your insurance company about attaching an amendment – called a rider – which can allow you to expand your coverage without giving up the cash value you have accrued.