5 Things to Look For When Buying Life Insurance
Choosing the right life insurance policy is an important part of making sure your loved ones are provided for after your death. Without the right amount of coverage, your loved ones could have to make major lifestyle changes in order to make ends meet. Here are 5 things to look for when buying life insurance.
1. Do You Need a Life Insurance Policy?
The first thing to think about when you consider buying life insurance is to understand why you need it. 63% of Americans think life insurance is necessary, but 30% do not. The perceived need for life insurance varies greatly among individuals, but generally life insurance is a good idea, especially if someone is financially dependent on you.
Some other circumstances in which purchasing life insurance is a good idea include when you buy a home or own a business. Life insurance benefits can help pay mortgages and estate or business taxes after you die. Also, a life insurance benefit can help your loved ones make payments if you have accumulated a lot of consumer debt in your lifetime.
2. How Much Insurance Coverage Do I Need?
The next thing to consider when buying life insurance is the amount of coverage you will need. Whether you are buying a life insurance plan to cover your funeral expenses, business taxes or your children's college tuition , you'll need to take a few things into consideration*.
First, calculate how much debt you have other than your mortgage. If you have more debt than your mortgage, you'll need to increase your life insurance policy to cover it. Next, calculate how much money you spend each month and how much money your dependents will need to continue their lifestyle. If you put money into savings each month, you can also factor that in because you may not need to purchase as much life insurance coverage.
3. What Type of Policy Should I Buy?
There are two primary types of life insurance policies, permanent life and term life.
- Permanent life insurance covers you for your entire life. This means that whether you die at 35 or 95, if you have continued to pay your premiums, your beneficiaries will receive a death benefit. Permanent life insurance can also act as an investment, as it has living benefits and a cash value.
While permanent life insurance may seem like a good investment, it is typically more expensive than term life, and the return on your investment may not be as good as if you were to invest in something else.
- Term life insurance covers you for a certain "term" or amount of time, which can be anywhere from 1 to 30 years, and sometimes even longer. If you die during the term of your life insurance policy, the provider will pay out a death benefit to your beneficiaries. There is no investment component to term life insurance, and it is usually less expensive than permanent life insurance.
4. How Much of a Monthly Premium Will I Pay?
Life insurance protects your loved ones for the future, but you'll need to make sure you can afford it in the present. The cost of life insurance varies among individuals. Younger and healthier people can typically purchase less expensive policies, while older people and people with certain health issues may have to pay more or may be denied insurance altogether.
As mentioned above, permanent life insurance policies are typically more expensive and can cost 10 to 20 times more than a term life policy.
5. How Do I Find an Insurance Provider?
You probably wouldn't purchase a car from a manufacturer who had a reputation of producing vehicles that fall apart. You would research the car first to make sure it is the best and safest option in your price point. The same principle applies to shopping for life insurance. You need to make sure the provider has a good reputation.
*Applications for insurance may be subject to acceptance by insurer. Rates and coverage amounts will depend upon the carrier selected.