How to Buy Life Insurance
Life insurance is often one of the most procrastinated purchases of a person’s life. After all, it’s easy to say things like, “I’m not even that old yet,” or, “It seems so complicated, I’ll just do it later!” However, tomorrow is never guaranteed, and signing up for a life insurance policy isn’t as complicated as you might think. That said, there are some things you have to know before you Buy Life Insurance.
Is Life Insurance For You, Buy Life Insurance?
While pretty much anybody can get value out of the safety net life insurance provides, it’s obviously a purchase that’s easier for some people to work into their budget than others. What may surprise you, however, is that people that aren’t as well-off financially are actually the ones that can benefit the most from life insurance, especially if they have families. While this might sound counterintuitive at first, consider this:
An individual that doesn’t have a lot of savings, maybe they live paycheck to paycheck, passes away unexpectedly. All of a sudden, that income is gone, and their family is thrust into an uncomfortable financial situation. If the individual was in debt, that can also pass on to the individual’s dependents. And then there’s also the cost of a funeral, burial, and other death-associated expenses. Life insurance can take care of all of these things and more.
Calculate the Amount of Coverage You Need
It’s hard for us to make a personalized estimate here as the total coverage needed by different individuals will vary greatly, but one rule of thumb is to adopt a policy with a death benefit that’s 10 times larger than your annual salary. Of course, not everyone will be able to afford a policy that checks that box, and not everyone will even need that much coverage, so here are some questions you should ask yourself before you decide on the death benefit value you want:
- How many mortgage payments or months of rent would I want to be covered for my family?
- What day-to-day expenses would my family need help paying for, and for how long?
- How much would my desired funeral cost my family?
- Would I want to address any potential long-term costs, like a future college tuition?
Decide on a Type of Life Insurance
Not all life insurance is created equal, and it’s not just the provider that varies. Here are two main types of life insurance:
Term Life Insurance
One of the most common types of life insurance is term life insurance. Term life insurance is only active for a certain amount of time (usually somewhere between 10 and 30 years), but it can often be renewed once it expires. Term life insurance is a popular choice because it’s almost always cheaper than a permanent life insurance policy and it can usually be paid for in a fixed monthly amount. Watch out though, term life insurance will sometimes provide a death benefit that decreases in value as time goes on, and term policies don’t carry a cash value component so you cannot withdraw from them while you’re alive.
Permanent Life Insurance
Unlike term life insurance, permanent life insurance lasts until the holder passes away, and it also contains a cash value that’s separate from the death benefit. Basically, every time you make a payment on your permanent life insurance, part of that payment goes toward the policy’s cash value which acts like an investment account that you can withdraw from. This cash value can fluctuate depending on interest rates or stock and money market mutual fund performance or the frequency and size of the dividends the insurer distributes to account holders.
Prepare For the Application Process
Signing up for life insurance isn’t as easy as joining a local gym. Many life insurance providers will require that you undergo a medical examination (since rates are primarily based on age and health) and you’ll likely be asked about your medical history, family medical history, tobacco use, occupation, and driving record. If getting a medical examination beforehand is a dealbreaker, there are a few policies that might still allow you to obtain life insurance:
Accelerated underwriting policy – This type of policy often involves a lengthy application and the insurance company will collect whatever information they can about you from third-party sources, even things like your prescription drug history. However, the premiums are usually about the same as the ones you’d pay for a policy that requires a medical exam.
Simplified issue – This type of policy’s application process will ask fewer questions, and the provider won’t look to third-party sources as often (if at all) for information about you, but the tradeoff is higher premium prices.
Guaranteed issue – This type of policy asks no health-related questions and you cannot be turned down, but it’s almost always the most expensive kind of life insurance policy you can sign up for.
Once you’ve purchased life insurance, you’re not necessarily trapped if something in your financial situation changes drastically. A provider like Coventry Direct might be able to help you sell your policy and get you out of any future premium payments. For more information and to see if you qualify, visit Coventrydirect.com.