54 percent of Americans had a life insurance policy of some type in 2020. If you’re among the 46 percent that is yet to purchase this life insurance, you may not understand how this insurance works and how to get one.
In this comprehensive life insurance buyer’s guide, we outline why life insurance is worth the investment and how to purchase the right policy for you.
What Is Life Insurance?
Life insurance refers to a contract between an insurer or assurer and a policyholder when the insurer agrees to pay a sum of money to a designated beneficiary once the insured person dies. In exchange, the policyholder pays premiums when alive.
Buying life insurance can help in many ways. Primarily, it allows you to leave your loved ones a non-taxable sum of money upon your death. The money can be used to cover your personal loans, mortgage, and other family expenses.
As you can see, purchasing a life insurance policy can help protect your family financially. Despite this massive benefit, many people still put off getting this coverage because of the perceived cost of the policy. In reality, life insurance is quite affordable, with a $250,000 20-year term policy averaging $14 per month when you take it at age 35.
Purchasing life insurance involves a series of decisions that you need to make. Follow these guidelines to get everything right.
Decide How Much Coverage You Need
The amount of life insurance to purchase will depend on what financial needs will continue once you’re dead. These needs may include ordinary family expenses, education fees for your children, and mortgage payments.
Consider whether anyone depends on you financially and how much of the family income you provide. Ask yourself how your loved ones will pay your final expenses, in addition to any outstanding debts. Once you’re clear on these issues, it’s easier to calculate how much coverage to buy.
If you still need help in this stage, consider talking to a financial advisor. A professional may help you evaluate your coverage needs, besides offering information on what policies are available.
Compare the Different Life Insurance Types
Life insurance comes in a variety of types. Be sure to choose a policy whose features fit your unique needs. Here’s what to consider:
Term Insurance Vs. Cash Value
Term insurance aims at offering a lower-cost coverage for a given period, referred to as a term. For those who want coverage for a lifetime, it’s better to opt for cash value insurance.
Renewable Vs. Nonrenewable Term
If term insurance is what appeals to you more, you can choose between renewable term and nonrenewable term coverage. A renewable term coverage allows you to renew it once the term is over. Typically, the premiums will go higher upon renewal.
With nonrenewable term insurance, the policy doesn’t get continued upon the expiry of the term. That means you must apply for a fresh policy to continue being covered.
Whole Life Insurance Vs. Universal Life Insurance
Those who opt for cash value insurance can choose between a whole life policy and a universal life policy. The former allows you to pay premiums following a set schedule. Policyholders can also make paid up additions to increase the cash value of the policy.
Universal life policy lets you choose a payment term that’s flexible. The essential thing is to make the payments required to keep the policy alive.
Ensure the Premium Is Affordable
Will you be able to comfortably pay the premiums? This should be the top question when thinking of purchasing an insurance policy. A great insurance policy with all the nice features will only prove a headache if it proves too expensive a few months down the line.
Consider whether you’ll still be able to keep up with the payments in case the premiums go up in the future. Ask your provider what the highest premium might be, and assess your ability to pay it.
Learn About the Application Process
The life insurance application process can be done online, through an insurance agent, or even by mail. Generally, you’ll need to provide such information as your name, date of birth, address, job title, and employer. You may also need to provide answers to questions about your health.
The most important thing is to be as truthful as possible with the information you provide. If your insurer discovers that you provided false information after they have issued your policy, there will be consequences. The insurer may choose to rescue your coverage or cancel it altogether.
A beneficiary refers to the party you name as the recipient of your policy’s death benefit. You can choose to name a person or an organization as your beneficiary.
Generally, it’s best not to name minors as beneficiaries as an insurer won’t release payment to a minor. The best alternative is to leave your money to a trust.
Review the Policy Regularly
Every few years, take the time to review your life insurance policy to ensure it meets your needs. Reviewing your policy also helps you keep up with any changes in it, such as an increase in premiums.
During your review, take into account recent life events that may necessitate increasing or reducing coverage. These events include marriage, birth, adoptions, job changes, divorce, and death. Keep in mind that you can opt to change beneficiaries at any time and without incurring any costs.
Life Insurance Buyer’s Guide You Need
Purchasing life insurance is one of the best financial decisions you can make. You get to make sure that your loved ones are well taken care of once you’re gone. And now that you have a comprehensive life insurance buyer’s guide, you should have no trouble getting the right policy for your needs.
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