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When someone is ready to purchase life insurance, there are many factors to consider. First, an individual needs to determine how much coverage they need, how much they can afford to pay, and how long the coverage will be needed, as well as many other considerations. Buying life insurance can be one of life‘s biggest decisions for many people. Especially in this economy, no one wants to take out the wrong type of policy or pay too much for their coverage. Keeping that in mind, here are some important facts and tips to consider before purchasing life insurance.
- Determine How Much Coverage Is Needed–If a person serves as the breadwinner or provides a significant source of income for their family, it is likely more coverage will be needed. Moreover, there are many other considerations that come into play when deciding on what and how much coverage to select. For instance, does someone have financial dependents? Has that individual considered how their family or loved ones will pay their final expenses and/or repay debts after their death? Have they set aside money for their burial or cremation plans? All of these questions must be considered when deciding how much coverage a person will need, for how long, and how much they can afford to pay. Moreover, a person should also consider if their financial circumstances change, will they be able to continue the policy? While an individual wants to make sure they purchase enough life insurance to cover the financial effects of an untimely or unexpected death, they also want to make sure they can continue to pay for the coverage if their financial fortunes experienced a downturn.
- Determine Whether Coverage Is Needed–As surprising as it might sound, not everyone necessarily requires life insurance coverage. For instance, if someone is unmarried and has no family or close friends who are financially dependent on them, and if that person has enough money to pay for their final expenses, this is an example of a person who might not require insurance coverage. Contrarily, if there are people (e.g. significant other, spouse, children, parents, siblings, close friends, business partner, etc.) who depend on someone financially, life insurance is likely a worthwhile and necessary expense.
- Evaluate Any Current or Pre-Existing Coverage–If someone already has a life insurance policy, they should not cancel it until it has been evaluated and/or they have received a new policy if additional coverage is needed. Once a person receives the new policy, there is a minimum grace period to review the new policy and decide if it will meet their wants and/or needs. Moreover, it is also important to remember that a person may not have to cancel their current policy. An individual should contact their current insurance carrier and explore changing their policy to meet their current as well as future circumstances.
- Make Sure the Premiums Are Affordable–Before purchasing any insurance policy, make sure the premium payments are affordable. This is not only an immediate concern but a future consideration as well. Therefore, a person should consider whether they can afford the initial premium. Then, if the premium increases later on or an individual’s financial status changes, will they still be able to afford the premiums? This consideration is a primary concern for consumers that cannot be overstated.
- Consider the Different Types of Policies–There are two main types of life insurance policies–term life insurance versus cash value insurance. In general, term life insurance has lower premiums in the early years, and it does not yield dividends or build up cash value for the future. Whereas there are three main cash value life insurance policies–whole, variable, and universal life. As with any insurance purchase, if someone wants to purchase cash value insurance coverage, they must do their research, determine how much they can afford, and assess their current as well as future needs.
- Always Review the Policy Carefully–It is important for a consumer to know their insurance policy inside and out, especially when it involves their own financial future as well as their family’s. How do benefits or premiums vary from year to year? Will any of the policy’s benefits accumulate or build up over time? Is there any portion of the benefits or premiums that is not guaranteed? Are there penalties for early withdrawal if a person cashes out their life insurance policy, in the event of terminal illness or other considerations? A thorough review of any policy should answer these and other related questions. However, an insurance agent can also assist consumers with anything that is unclear.
- Understand the Renewal Policies–Most term insurance policies can be renewed for one or more terms even if a person’s health has changed. Each time the policy is renewed for a new term, premiums may have changed. Therefore, consumers should inquire what the premiums will be if the policy is continued or renewed. Moreover, an individual should inquire if they will lose the right to renew the policy at a certain age.
As demonstrated, purchasing life insurance is not a simple matter. In fact, there are many factors to consider. Some considerations that should be addressed include how much coverage a person will need, how much they can afford to pay in premiums, and how long they will need the coverage, etc. Buying life insurance is one of life’s biggest decisions for many people. Especially in the current economy, it is important to avoid taking out the wrong type of policy or paying too much for coverage. Hopefully, these important facts and tips to consider before purchasing life insurance will steer consumers in the right direction.
Written and Edited by Leigh Haugh
Consumer Reports–Is Whole Life Insurance Right for You?
Bankrate–In Your 30s With Kids? Here’s Why You Definitely Need Life Insurance
NerdWallet–5 Simple Ways to Save Money on Life Insurance
GetRichSlowly–14 Tips for Purchasing Life Insurance