Choose the best coverage for life

By Ramon Simms

LIFE insurance used to be big business, sold door-to-door with thousands of representatives covering a vast geographical territory. Even though such sales are not as visible as they once were, the product still exists and thrives in the digital world and over the telephone. And, despite changing sales tactics by insurance companies, which you may or may not approve of, life insurance remains a valuable option you should consider when putting together a complete financial portfolio.

Life insurance is simply morbid. There is no getting around it. Unlike most other financial products, at its core it is a product built upon a scenario in which you no longer exist but which, ironically, you have paid for. But if you are concerned about your family's ability to survive and thrive without you, and after you have taken a moment to reflect on that, it is time to press on.

As with any financial product, the most important consideration is whether or not it is the right fit for you. The best description of life insurance is that it provides financial support to your dependents in the event of your passing. However, this presupposes that you will have people depending on your income after you pass away. In addition, it assumes you will not have saved enough assets for your dependents to support themselves after you die. Technically, it takes your death for granted, but for us humans that is unfortunately a mathematical certainty.

The point is that if you do not have any dependents that rely on you, or you do not expect them to need more than your savings after you are gone, you probably do not need life insurance. This is often the case with relatively young, single persons with no children and decades of earning potential, but is not actually a direct factor of age, children or spouses. Life insurance is dependent on what any beneficiaries you have might need, and the extent to which your savings can cover those needs. A dependent can be anyone who relies on your financial resources for any reason. How much you save for retirement depends largely on how much money you earn over time, and your ability to control the expenses associated with your lifestyle.

In the event you actually need it, life insurance can be a great tool that acts as a safety net for your beneficiaries in the event of your untimely departure. Life insurance can give a partner who was a full-time caregiver critical time to adjust before they have to return to the workforce. It can provide a wife struggling to pay all the bills with a replacement source of income to help her cover the house or car payments. It can be a secondary pool of funds that your children can use to financially support their college education.

The basic components of a life insurance policy include the benefit, the premiums and, in the case of permanent life insurance (coverage that lasts a lifetime), a cash value account. The benefit is the agreed amount that your beneficiaries will receive from the insurer in the event of your death. The premium is what the insurer requires the insured to pay monthly in order to make his or her obligation to pay the benefit worthwhile. Premiums for life insurance with limited coverage periods are priced for the cost of that coverage, while premiums for life insurance policies that offer lifetime coverage also include an additional amount for deposit into a cash value account. A cash value account is the vehicle in which that additional amount accumulates and earns interest or investment income over time.

There are an abundance of life insurance products on the market, but the most popular options are term life insurance; whole life insurance; and universal life insurance. Term life insurance offers financial protection for a set period of time. It has fixed premiums and a fixed benefit. The upside of a term life policy is that it is the simplest of the three, and often the least expensive. The main downside is you might outlive the policy and still need more insurance afterwards.

Whole life insurance differs in that it is designed to provide lifetime protection (permanent life insurance). Unlike term insurance, it includes a cash value account and an option that allows the insured to potentially borrow against this accumulated amount. The main advantage of whole life insurance is stability. As long as you make the premiums, you are covered. Like term insurance, the premiums and benefits are fixed. In addition, the interest you earn on your cash value account is fixed and guaranteed by the insurer. The disadvantage is that this policy costs considerably more than the other three in terms of premiums. Universal life insurance is another form of permanent life insurance. Flexibility is its main advantage. Unlike term or whole life insurance, these policies allow you to adjust your premium or benefit up or down over time. Universal insurance coverage, like whole life insurance, also includes a cash value account except it earns interest at a minimal rate and its value depends on how well (or how poorly) the insurance company's investment portfolio does. The disadvantage is the complexity of the policy and the additional risk exposure the insured party takes on with all those moving parts.

Determining which of these policy types (or numerous others) is best for your needs depends on your exact situation. Your rate is going to be determined by many factors, including your family medical history, personal health, and daily lifestyle. The benefit target you choose should be a function of family obligations, future dependent needs, alternative income sources and current assets versus current liabilities. Make your selection by talking to an experienced insurance broker or agent - one who can compare prices and coverage across multiple insurers. Get referrals from friends and interview several representatives. Select the one that is most knowledgeable, reliable and cooperative. Use the broker or agent to help you calculate your benefit target, decipher policy options, uncover hidden costs and get the best pricing available.

Ultimately, you want to choose a policy that is tailored for you and not just what an agent wants to sell or what a friend recommends. Knowing you have the right policy in place to cover your loved ones will make the effort worthwhile, and having the comfort of that kind of security is priceless.

NB: Ramon Simms is a management professional with more than 10 years experience at the intersection of finance, operations and technology. He holds a BA in Financial Economics and an MBA in Entrepreneurship. He is a managing director at IFF Lts ( Bahamas, and you can reach him at