The Five Most Important Considerations When Buying Life Insurance
Buying life insurance is a big decision, and all the available options can make it seem absolutely overwhelming. Don’t lose your cool! You don’t have to become an insurance guru. You just have to know what you’re buying and why.
The following are the most important things to keep in mind when purchasing a life insurance policy.
Do you need life insurance?
If you have dependents, such as children, a spouse, or elderly parents, then you probably need life insurance. But if nobody depends on you for income and you have some money set aside for debts and funeral costs, then there’s absolutely no reason to purchase life insurance at this time. Don’t buy policies you don’t need… but make sure you have one if you need it!
What type of life insurance is best?
Are you looking for a permanent life insurance policy or a term policy? If you don’t know the difference, here’s a basic explanation:
• Permanent life insurance is active until your death and includes a cash value. You may withdraw from this cash value account, but you’ll be charged fees and taxes to do so. Unless other arrangements are made, these policies cannot be touched until they are distributed to your beneficiaries upon your death.
Term life insurance is cheaper and less of a commitment.
• Term insurance is only active until you decide to stop paying into it. If you can’t afford a full permanent policy, term insurance can be a great solution. Consider covering only the “term” of your life when your children are small; once they grow up, you don’t necessarily need to have a life insurance policy to benefit them.
If you don’t know what type of policy you need, your best bet is to talk to a financial advisor. A one-time meeting with an insurance investor can set you on the right track and ensure you’re not wasting your money on a policy you don’t need… or setting your family up for a crisis by not having the right policy.
How much life insurance do you need?
In general, you can calculate the necessary amount by estimating what your annual income is and calculating how your family would get along in the event of your death. You will need to replace your income for them for at least the first few years, and also take into account any outstanding debts or funeral costs you’ll be leaving behind.
Again, an advisor is a good investment at this point. Don’t leave this decision up to the insurance provider- they will most likely talk you into a higher amount of insurance than you really need. A huge percentage of Americans are paying too much into their life insurance policies.
Have you covered all the bases?
When calculating whether or not to purchase life insurance and how much you need, your family should sit down and go over the finances carefully. Cover all possible bases. Make sure to include possible emergencies when calculating how much insurance to purchase.
Also consider whether one or both spouses should be insured. Keep in mind that if you have one spouse who stays home with the kids, the death of that spouse will result in the need for child care. So even without income, a stay at home spouse contributes to the family’s financial situation and thus should be insured.
Are you comfortable with your policy?
Although the general attitude is that shopping around for the lowest possible rate is the best way to find the right insurance provider, there’s more at stake here. Low prices are great, but don’t choose a provider just because they offer the best rate. You must also make sure that you’re comfortable with the company and that you understand, to a T, every angle and clause of your policy. This is extremely important for your own peace of mind as well as your family’s security.
If you don’t understand your policy, ask. If you still don’t understand your policy, get a professional involved… or find a new provider. It’s your life insurance policy, and it’s up to you to make sure it meets your needs.