7 Factors to Consider When Choosing Life Insurance Policies
Choosing life insurance policies can be an overwhelming process. If you are not familiar with buying life insurance, you may find it difficult because it forces us to think about what our families will go through if we are not around.
If that was not challenging enough, there are too many options to choose from. Here are some factors to consider that will help you choose between the different types of insurance.
1. Understand What Life Insurance Is
Life insurance is a contract you have between yourself and life insurance providers to pay a set amount of money to the person you choose after your passing.
The insurance company commits to paying this amount after you pay a premium in return. The money insurance companies pay is called a death benefit. The person who will receive the money is the beneficiary.
2. Think About Why You Need Life Insurance
Many people want to get life insurance to protect their loved ones from financial burdens. You may want to secure wealth or lifestyle for your chosen beneficiaries. They can then use these paid out funds for funeral expenses (look into AARP burial insurance for more on this topic), student debt, unpaid bills, and other expenses.
This money can help your spouse or family continue enjoying their accustomed lifestyle without falling into debt. With some life insurance policies, they can also generate and build wealth.
This is because life insurance is also an investment option. Paid up additions can optionally be added to your policy. This will help raise money much faster, or they can be added later to increase the cash value benefits your loved ones can claim.
Some even use these policies as a method of transferring wealth. When your beneficiaries get their death benefit, your life insurance will give them a tax break.
Getting life insurance is also another way of paying for estate taxes. Then your family does not have to use their inheritance for these expenses.
3. Research Different Life Insurance Policies
The two main policies you will hear most about are permanent and term life insurances. Term insurance is standalone, but permanent life insurance breaks into two separate branches known as universal and whole life insurances.
If you opt for term life insurance, you can pick a policy for a certain length of time. This will be known as your term. Permanent life insurance does not have an expiry date. However, some companies may offer plans up to the age of 65.
If you buy term life insurance, you can get it for a specific time between 10 and 30 years. There are no cash values. Then your policy will expire at the end of the term unless you want it to be convertible. This is one of the least costly policies you can find.
Whole life insurance can last as long as you keep paying the premiums. This is a branch of permanent life insurance that can build up in cash value. Upon surrendering the policy, the money is given back to you.
Universal life insurance is another branch of permanent life insurance. This will offer you investment options. Your premiums can be adjusted over time depending on how you manage them.
You can also borrow from this life insurance policy. There is no set rule that you can only pick between one type of insurance. It is always a better financial option to go for a combination of both permanent and term insurances as your needs change with age.
4. Combination Life Insurance Policies
Combination life insurance policies have options to payout in other circumstances besides death. This has become a popular choice for many people because it combines with other coverages.
One such coverage that can be added to a life insurance policy is TPD insurance, which pays out when you become Totally and Permanently Disabled due to illness or injury.
This can give you money to fund any care you need, or help support your new life if you find yourself now unable to work as a result of your disability; you can click here to learn more about how you could get support filing a claim for TPD, should you ever find yourself needing to do so.
5. Converting Your Policy
If you go for convertible life insurance policies, you can start with term insurance and then convert your policy to whole life later instead of losing your current coverage at the end of your term.
Then you will not have to do medical exams again if you are simply converting the policy to whole life insurance.
6. How Much Life Insurance You Need
People are buying life insurance for multiple reasons. The amount you need will depend on why you are interested in buying it for yourself. If you want to secure your loved ones’ financial well-being in the event of an unexpected death, then you need to review your personal factors to determine the amount you need.
Think about how much income your family requires each year to replace yours. Then ask how many years you would need to provide them an income. Will your spouse keep working after losing you? How long will they keep working?
Your family may need additional funds for college when the kids grow up or to pay off debts they owe. There may be medical bills and mortgages you need to account for.
There is no straightforward answer for how much life insurance you will need. Everyone’s family situation is different, so you should consider these points carefully.
7. Comparing Insurance Costs
Young millennials often overestimate insurance costs and hesitate to invest. This can be as expensive as a few dollars a month to several hundred, depending on the chosen policy.
The cost of life insurance policies depends on a person’s age, their medical conditions, and the amount of death benefit they are seeking, and whether the policy gives a cash value or not.
Note that permanent life insurance is a lot more expensive than term insurance. Younger people can get the cheapest insurance depending on how healthy they are.
Do Not Fear Buying Life Insurance
Although there are several life insurance policies to choose from, you can always find advice to pick the right option. Think about your personal needs and how your family will use the funds paid out to them.
This will help you shop for the best coverage. Ultimately, your age and personal situation will dictate the options to choose and how much you can afford to pay.
Then you can feel secure knowing that you are doing the right thing to protect your loved ones in the future. If you enjoyed reading this article, check out some of our other posts for more information.