How Do I Choose a Life Insurance Product?

There’s no “one size fits all” when it comes to life insurance. With so many products on the market, how do you choose just one? Do you pick the product endorsed by your favorite talk show host, or the one with the funniest commercials?

Choosing a life insurance product is a big decision and not one to be taken lightly. Read on for some factors to consider.

Basic protection

Do you need life insurance just for death benefit protection?

• Term insurance generally provides a death benefit at a lower cost than other types of insurance.

Market participation and cash value

If you need insurance protection for the long term and want the potential for cash value accumulation — and have a little more to spend — you may want to consider permanent life insurance. Whole, universal and variable universal life insurance also can accumulate cash value.

• Whole life insurance builds value based upon a predetermined schedule. You’ll have a schedule that shows the exact cash value of your policy on each policy anniversary. (Your future policy values will change if you take a loan or withdrawal from your policy, which decreases cash value and the death benefit.)
  
  
• Universal life insurance earns a fixed interest rate on the cash value in the policy. The interest rate is tied to stock market performance, but will never dip below a guaranteed minimum rate.
  
  
• Variable universal life insurance offers market participation, which means you can invest your cash value in the stock market. You choose the underlying fund options, and your policy value increases or decreases based on the performance of your choices. Underlying subaccounts are only available as investment options in variable insurance contract issued by life insurance companies. They are not offered directly to the general public.

Coverage duration

Do you need life insurance coverage just for a specific period, like while you’re paying off your mortgage? Term life insurance offers protection for a specific period of time — all other types of insurance cover you for life, as long as the necessary premiums are paid to keep the policy in force.

Fees and charges

Ask about the fees and charges associated with a life insurance policy before you buy. Make sure you understand how they’re calculated and what they’re used for. Read more about common fees and charges.

Access to money

When you are considering the type of life insurance to buy, think about whether you plan to take money out of your policy in the future. Will you need to pay college tuition out of your policy value? Or take retirement income?

Most whole, universal and variable universal products allow you access to your money via loans or withdrawals¹. Some products have restrictions on when you can take money, how much you can take and, in the case of loans, the interest rate for outstanding loans.

Flexible payments

Some universal and variable universal life products let you make flexible payments. You have to pay enough to cover your policy charges, but above that you have flexibility in how often and how much you pay.

As your personal situations change (i.e., marriage, birth of a child or job promotion), so will your life insurance needs. Take care to ensure these strategies and products are suitable for your long-term life insurance needs. Also, be aware that market volatility can lead to the possible need for additional premium in your policy.  Investors should evaluate the impact of their financial ability to continue premium payments and the market risk associated with the variable product on the risk of lapse of the insurance policy.

Also, know that any loans, withdrawals, and surrenders, partial or whole, can adversely affect the death benefit, may have adverse tax consequences,  and could result in the policy lapsing. Variable life insurance has fees and charges associated with it that include a cost of insurance that varies with such characteristics of the insured person as gender, health and age, underlying fund charges and expenses, and additional charges for riders that customize a policy to fit your individual needs.

Before deciding on a variable life insurance policy, you should carefully consider the investment objectives, risks, charges, and expenses of the policy and its investment options. The product prospectus and underlying fund prospectus contain this and other important information. To obtain a product prospectus, variable universal life insurance quote, or underlying fund prospectus, contact your investment professional or Nationwide. Read the prospectus carefully before making a purchase.

^{1Assumes contract qualifies as life insurance under Internal Revenue Code (IRC) Section 7702. Most distributions are taxed on a first-in/first-out basis as long as the contract remains in force and meets the non-MEC (Modified Endowment Contract) definitions of IRC Section 7702A. Loans and partial surrenders from a MEC will generally be taxable, and if taken prior to age 59 ½, may be subject to a 10% tax penalty.}

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