The Cost of Life: How to Use a Cost Index

They say that only two things in life are certain: death and taxes. While death is certain, it’s also very uncertain. There’s no real way to prepare for death because you don’t know when it’s going to happen. The only way you can feel kind of prepared is by ensuring you have a quality life insurance plan to take care of your loved ones after you’ve passed. The best way to decide on a life insurance policy, other than talking with professionals, is by looking at their cost index. Here is a quick breakdown on cost indexes to help you better understand your life insurance policy.

What is a Cost Index?

Cost indexes are indexes that consider premiums, cash values, and dividends when comparing similar life insurance policies. Essentially, cost indexes are to help people deciding on a life insurance policy which is of the best value to them. There are two major types of cost indexes. The first is the Life Insurance Surrender Cost Index. This one is for those who focus on the cash value of the policy should you want to surrender the policy at some point in the future and take the cash value instead. The other major cost index is the Life Insurance Net Payment Cost Index. This index is better used for those who aren’t worried about the cash value and instead focused on the benefits after death.

How to Use a Cost Index

The main thing to keep in mind is that the lower the cost index number, the more value you’ll be getting from this policy. There are certain things to keep in mind when looking at cost indexes.

  1. These indexes were made to compare only similar policies. Only policies with the same or nearly the same benefits should be compared using a cost index.
  2. The same is to be said for comparing policies based on age. Look at comparable policies based on your age and how much you want to buy. This will give a more accurate comparison using the index.
  3. While cost indexes are useful for comparing, they shouldn’t be the only factor. When you have two almost identical policies with similar but different cost index number, look at other factors.
  4. A factor to take into account is the agent you’re working with. Think about how qualified the company or your agent appear to be. Picking an agent you trust is just as important as the index numbers.
  5. The cost index is only designed to compare new policies. For those who already have a policy they have been paying, talk to a professional insurance provider, preferably the provider of the policy you already have. They can help get an accurate comparison between your old policy and new ones.

That’s the gist of it. Insurance can get confusing and cost indexes are made to make comparing different policies easier for the average person. Of course, there are more to policies so for any questions contact Brownell Financial Services Group or visit them online here.