Life insurance is the answer to one of the most troubling questions we face: “what would your dependents do in case of your untimely demise?” It’s a topic most of us avoid thinking about. But the truth is every one of us needs to put in a lot of thought to the dilemma our families might face after we’re gone! Basically, life insurance is the money paid to your family after you have passed away. Think of it as a savings plan that’ll support your family and cover their routine expenses, college tuition for your kids, mortgage payments and any outstanding home or auto loans you might have.
Choosing life insurance can be tricky – especially if you haven’t purchased it before. There are various types of policies and you need to know several things before you purchase a policy that best fits your needs – “such as how much insurance you need and how much premium can you afford to pay.” Here are a few things you should know before you invest in life insurance.
Things to Bear in Mind about Life Insurance
How much Insurance you Need
Reviewing your needs and deciding how much coverage you need and can afford is the first step toward investing in life insurance. Factors affecting this are your family income and number of dependents in your family. The coverage you choose should be able to provide your family with financial security in the event of your untimely death. Make sure you can pay the monthly premiums and whether you can afford to pay them in case they increase over time for some reason. Most Americans think a policy four times their income is sufficient, but the truth is your policy should be at least ten times your income to pay for your medical and funeral expenses, college and school fees, car loans, mortgage, and taxes. Typically, the policy should last till your retirement fund sets in or your children are done with college and no longer depend on you.
Understand the Different Kinds of Life Insurance
There are various types of life insurance policies that can help you define your financial strategy in case of an emergency. They offer different features such as cash value that’s cumulative in nature and grows over time.
- Term life insurance: As the name suggests, term life insurance is insurance for a specified length of time, referred to as a ‘term.’ The coverage for term life is usually either 10, 20, or 30 years. The premium for term life policies is considerably lower than the other kinds, but it offers no cash value. It’s said to be the most affordable form of coverage for people who wish to invest in life insurance.
- Permanent life insurance: This kind of life insurance offers lifelong coverage and allows you to collect a specified amount of cash value which is non-taxable, and which can be used for various purposes such as providing funds and bailing you out if you find yourself in a financial crunch. Permanent life can be further divided into the following subtypes:
- Whole life: The premiums in this type of insurance don’t change and stay the same with time. The final death benefit in this case gives you a good return on your cash value.
- Universal life: This insurance gives you the option of choosing variable premiums. A minimum death benefit is guaranteed, if the premium amount you have chosen is sufficient enough to cover it.
- Variable life: The cash value and death benefit for variable life is subject to change depending upon your investments and financial assets.
- Variable universal life: Another option which allows you to set variable monthly premiums. It allows you to allocate these premiums depending on your investment portfolio.
Permanent life insurance offers more security, but can be very expensive, whereas term life, which is very affordable as compared to permanent, is only for a specified time, with the coverage ending at the end of the term.
Reviewing your Policy
Assess your current policy to see if it needs to be upgraded. You may want to consider how and whether the rising cost of living due to inflation has altered your needs. If your family size has increased such as a spouse or the arrival of a baby, you may need more insurance. If you wish to renew your current policy, understand that premiums may be higher than what you were paying previously.
Buy when you’re young
The younger you are, the healthier you are, which can substantially lower your premiums. But that should not dissuade you from buying a policy if you aren’t as young. Having a pre-existing medical condition or being advanced in age doesn’t mean your premiums will be unaffordable. You just need to shop around for the best policy or have a word with an agent who can guide you in the right direction.
Buying life insurance can be intimidating to some people, but don’t procrastinate and delay it any further. Getting quotes off the Internet is easy, and if it seems confusing, don’t hesitate to seek advice from an insurance agent. Insurance is one of the greatest financial assets you can have for your family’s future, so ensure you provide them with the best in the event of your absence!
About the Author
AccuQuote is a leader in providing term life quotes to people across the United States. In 1986 it began operating with a single goal: to make the process of buying term insurance as easy as possible for its customers. Their experienced professionals consistently deliver the most affordable term life insurance rates by comparing thousands of life insurance policies from dozens of top-rated carriers.