Purchasing life insurance is not something to be done lightly. It requires researching various policies to find what works best for you, your family, and your budget. Here are a series of questions that can help you as you shop for the best policy.
1. Do I Need Life Insurance?
It’s easy to say everybody needs insurance, but what will you use it for? Take a moment to consider the lives of your loved ones in the event of your passing. You may want to purchase life insurance to:
- Protect family income.
- Care for a spouse or children.
- Leave money to charity.
- Cover their outstanding debts.
- Support a child with special needs.
- Pay for funeral and burial costs.
2. How Much Coverage Do I Need?
It may take some calculations to determine the actual amount of coverage you need. First, consider any immediate costs if you were to pass—such as funeral or medical expenses. Then, consider the debts and obligations you have outstanding. Lastly, consider how much income your loved ones would need to live a comfortable life, free from financial stresses, for a specified period. Add these subtotals to any other expenses and round up to calculate the amount of coverage you need.
3. How Long Do I Need My Coverage to Last?
Insurance can be purchased for a specific term, for example, 10, 20, 30, 40 years, or a lifetime. Shorter periods of coverage are less expensive. Term life insurance policies offer a low-cost option to cover your main period in the workforce, but once they expire, so does your coverage, although some policies can be converted to whole life at specific times. Whole life insurance policies are more expensive but do not expire, and the policy’s value is an asset that can be borrowed against in time.
4. Do I Need a Cash Value Component?
Whole life insurance offers a cash value component that could be useful. After your premiums have covered the policy costs, they accumulate in a separate account. Do you think you will need to withdraw or borrow from the stored cash value in the future? Can you afford the increased cost to have this liquid account available to you? Term life insurance does not offer a cash value option.
5. What is My Current Ability to Pay?
Your income is a consideration when choosing a policy. Term life insurance typically runs in the hundreds of dollars annually, while any type of whole life insurance is likely to be in the thousands. Term is an easier option, but the years of benefit are capped. Whole Life insurance offers policyholders far more benefits, but as with all policies, the premiums must be paid on time, or the policy will lapse.
6. What Type of Life Insurance Best Suits My Needs?
Knowing the five general insurance categories can help you get answers when meeting an insurance agent. In broad terms, they are:
- Term life insurance: This lower-cost option provides coverage for a specified time for a set premium that does not change.
- Whole life insurance: A pricier policy that provides a death benefit for a person’s lifetime. Premiums are a set rate and are stored in a cash account once the policy is paid. The cash account can be used in various ways, including loans.
- Universal life insurance: A version of whole life insurance that offers flexible premiums and a cash account connected to a market index to earn interest. Premiums will increase over time based on the policyholder’s age.
- Variable life insurance: A whole life insurance option with an investment component. Instead of the cash account earning simple interest, it is an investment fund operated by the insured. These policies have higher risk and higher growth potential.
- Burial insurance: A policy focused only on covering end-of-life expenses and outstanding debt. It requires no medical exam, is often lower cost, and has a smaller cash payout than typical life insurance. Its features make it a potential option for senior citizens or individuals with pre-existing medical conditions.
7. Which Insurance Provider Is the Most Dependable?
When it comes to keeping your loved ones safe and debt-free, trusting a high-quality, financially stable institution is crucial. One way to determine a company’s creditworthiness is to review its rating on AM Best, a global credit rating agency. Read customer reviews to determine if the company has a good reputation for customer care.
More Questions? We Have Answers.
You probably have some specific questions about a policy tailored to your needs. That’s why we are here. Call our office today to talk to an experienced insurance agent who can help you make the best decision on the best policy for you.