Buying life insurance is an important financial decision. Not only can it help protect the loved ones who depend on you, but it can also serve as a useful financial tool. To help ensure you make the right decision, take the following steps before shopping for a life insurance policy.
Determine How Much Life Insurance You Need
How much will be needed in death benefits to cover expenses left behind if something should happen to you? The DIME method is often used to calculate life insurance needs:
- D = Debt (student loans, credit cards, car loans, mortgage, etc.)
- I = Income replacement (how long your income will need to be replaced to protect your loved ones)
- M = Mortality (your funeral and burial expenses)
- E = Education (funds needed for dependents’ education or childcare)
Decide the Length of Time You Need Life Insurance Coverage
You can either purchase term life insurance or permanent (whole) life insurance. Term policies expire after a certain length of time. A whole life insurance policy continues until your death but costs more than term life insurance. If you only want coverage while you are paying off your mortgage or raising your children, term life insurance may be your best option. On the other hand, if you want coverage for the remainder of your life, whole life insurance is the best choice.
Consider Your Other Financial Objectives
Whole life insurance offers advantages in addition to death benefits. It can serve as a type of savings account. A permanent life insurance policy accrues cash value that increases over time on a tax-deferred basis, similar to a retirement plan. This type of life insurance can play an important role in your long-term financial planning.
Make Sure You Can Afford the Premiums
For a life insurance policy to remain in effect, you must continue paying your premiums. Only purchase a policy you can afford. If you should stop making your payments for any reason, the money invested up to that point would be money lost, with no benefit.
Name a Beneficiary for Your Policy
The person named as the beneficiary on your life insurance policy is the person who will receive the proceeds in the event of your death. This is an important decision, and our agent will be happy to advise you. Do not name your minor children — minors are not legally able to receive funds. For tax purposes, you may not want to name your estate as the beneficiary.
Speak with a Knowledgeable Agent
Purchasing a life insurance policy is a big step that can impact your financial future. It is important to shop for the coverage you need at the best available rates. It is also important not to delay, as the older you are when you purchase life insurance, the fewer your options and the higher your rates are likely to be. Our experienced agent can advise you on your choices and help you find the best quote for the life insurance coverage you need.