Skip to main content

5 Factors To Consider Before Buying Life Insurance

While all life insurance policies are designed to provide a cash benefit after you die, each policy works a little differently.

Life insurance policies come in several forms, each with their own pros and cons. Depending on the type of policy you choose, certain personal factors may affect your coverage.

When shopping for life insurance, consider these five factors to find the right policy for you.

1: Age

The older you are, the more your life insurance policy will likely cost. For that reason, your age is an important factor to consider when deciding what kind of life insurance to buy.

Your age may also be an indication of where you are in life in terms of family and finances. Young people with new spouses or children may need a shorter term life insurance policy with a larger death benefit to protect the family through college and mortgage payments.

On the other hand, older adults who have had more time for personal savings may opt for a smaller policy to cover a specific need. For example, final expense plans are designed to cover the cost of a funeral and other end-of-life expenses, making them an option for older buyers.

When you’re young, you may have more options for the types of policies you can buy. Older buyers may have a harder time getting approved for certain policies.

2: Budget

Permanent life insurance policies are usually more expensive than term life insurance policies because they last your entire life. For example, a healthy 35-year-old may be able to get a term life insurance policy for as little as $430 a year. However, a whole life insurance policy could easily cost more than $3,500 a year for the same buyer.

If you have a smaller budget but still want to purchase some type of coverage, you might want to look for term life insurance policies with varying death benefits and compare rates in your area. Keep in mind that the easiest way to save money on life insurance premiums of any kind is to buy a policy while you are still young and healthy.

3: Health Status

The healthier you are, the less risk you pose to an insurance company. This means that you may pay less for a life insurance policy. If you are in poor health, you may pay more or have a hard time getting approved for a typical term life insurance or whole life insurance plan — even if it’s a simplified-issue plan that doesn’t require a medical exam, only health questions.

Guaranteed-acceptance policies are an option if you’ve been denied for other types of policies. These policies may have a graded death benefit over time and the premiums may be more expensive than other policies on the market. Still, it could be a good option for people who need coverage but have been denied in the past.

4: Long-Term Needs

Life insurance policies can cover you anywhere from a few years to a lifetime. The type of policy and amount of coverage you choose should depend on what your loved ones will realistically need to help replace your income after you die.

For many people, a term life insurance policy with a large coverage amount might be suitable to help ensure your children will have enough to get through college and your spouse will be able to pay off all of your mutual debts and maintain his or her standard of living. You just need to make sure you select an adequate death benefit in order to cover these expenses.

If you don’t feel comfortable leaving your beneficiaries without any type of coverage after your term expires, a permanent life insurance plan may be a better option.

Permanent life insurance plans also have additional benefits that you can use while you are still alive. They can accumulate cash value over time and allow you to borrow against its value when you need it. Some whole life insurance plans also pay annual dividends to policyholders. A whole life insurance policy could be worth looking into if these factors could benefit your long-term financial plan.

A permanent policy's cash value can be used to pay premiums, or may be accessed via loans or withdrawals. Policy loans and withdrawals will reduce cash values and death benefits, and may cause the policy to lapse. Additional premium payments may be required to keep the policy in force. Withdrawals may be subject to a surrender charge. Withdrawals and any unpaid loans are subject to ordinary income tax and, if taken prior to 59 1/2, a 10% federal additional tax.

5: Estate Planning and Investments

Whole life insurance plans offer certain tax benefits and may be used for estate planning. If you are thinking about using your life insurance policy in this way, talk to a licensed insurance agent or financial professional.

Learn More