Life insurance provides financial support for your beneficiaries in the event that you pass away. The insurance pays out as an income replacement to cover debts, bills, food and other expenses.
There are very important questions you need to ask yourself prior to buying life insurance. What is the right policy for you? How much life insurance do you really need to cover yourself and your family? Which is the best company out of all the available options?
These are some questions you might want to consider prior to buying a life insurance policy.
▪ How much does my family depend on my income? ▪ Would it be a good idea to leave my money to a family member or donate to a charitable organization in the event that I am no longer around. ▪ Could life insurance help with a burden where the cost of living has negatively affected perhaps my spouse or children or any other dependents? ▪ When I pass on, how will my loved ones stand the expense of my burial and or funeral expenses and repay any debts that I might have if I pass away unexpectedly? ▪ Who else depends on my income? A parent or grandparent, or a sister or a brother? ▪ Would my family be able to get by if something were to happen to me or would they struggle in a financial sense? ▪ Will anyone be required to pay estate taxes once I am gone? If so, will they be able to pay them?
Now let’s look at the various types of policies that you can compare while shopping for life insurance.
The two life insurance policy types are:
Term Life Insurance
The premiums for this life insurance policy are typically lower than the policies you would expect to pay for a similar whole life insurance plan. However, the term rates typically increase with age.
A term life plan covers you for a certain amount of time, i.e. 10, 20, or 30 years. The benefit is only paid out if you pass away during that specific “term” or time.
There are no savings option associated with a term plan, unlike with whole life insurance. The former will accumulate a cash value overtime, but not the later.)
Whole Life Insurance
A whole life policy might be the policy for you if you are looking for an insurance that can provide protection for the remainder of your life.
The premium you would be paying for whole life insurance will in fact be higher, initially, than what you would expect to pay for a term life insurance policy. However, the term premiums associated with whole life appear to remain stable throughout the life of the policy.
As we mentioned, a whole life policy will create a cash value up to its date of maturity. You will be able to borrow against or use the amount a many ways (once a certain period of time has passed) as long as the policy hasn’t been cancelled.
There are two main options for term life insurance which are known as decreasing term and level term. Throughout the term, the death benefit remains the same in the latter and dropping overtime in the former.
There are additional options that whole life insurance has to offer the would be buyer. The most common of those are whole life (traditional), variable life, universal life and a variable universal life policy.
You next question once you have decided on either a whole life or term life policy, is how much coverage is needed or how much should I buy?
If the plan is to provide financial protection for your family or any other dependents, it might be difficult to answer. A good rule of thumb would be to purchase enough life insurance so as to replace your income.
There could be hidden income that you might want to offset in the event that you are deceased. Such as employer contributions to a retirement plan and your health insurance subsidy.
If you want to make an informed decision while shopping for an insurance policy, here are a few additional questions.
▪ Do the benefits ties to this policy grow and if so how quickly? ▪ Will the benefits and or premiums for this policy change from year to year? ▪ Are there no guarantees with any part of the benefits or policy premium? If yes, which part?
Understand that no “single provider” can offer the lowest possible premium for each and every insurance policy. Therefore, you should try to get quotes from several agents or companies and do the necessary research.