Last Updated on September 21, 2020 by Andrew Lee
As you make your way through life, the many different benefits of having a life insurance policy become all the more apparent. With life coverage, you can provide your loved ones with a way to remain financially stable and secure, even when you’re no longer with them physically. This way, you can still take care of their needs.
Aside from leaving them with a source of funds to cover burial costs, you can also ensure your college kid remains in school. More importantly, they can use your policy’s proceeds to pay off the mortgage so they can still have a roof above their heads.
Before you purchase a policy though, make sure you perform these pre-buying steps first.
Decide on the type of coverage
What you want is a policy best suited for your needs but won’t break the bank. Depending on your budget, you can choose between the two basic types of life insurance, namely term and whole life. The former insures you for a specified period of time, while the latter insures you for life, given that you keep paying your premiums.
If you opt for term, decide on the length of time you want to remain covered, how much coverage you need, and what you can realistically spend for it. With term life cover, you can choose a term ranging from one to thirty years. Some insurers also allow their policy holders to specify an age that will serve as the term of the insurance. For instance, you can have your policy last up until you turn the age of 65.
On the other hand, if you want to combine insurance with an investment vehicle, then consider going for a whole life policy. It costs more, but because it accumulates cash value, you and your loved ones will have an extra source of funds.
Assess your current policy
As an employee, the company you work for most likely purchased life insurance as part of your employment benefits. If so, take the time to review your present policy before making any changes. This way, you can determine if it’s enough for the time being. If it doesn’t have enough coverage, consult the human resources department to find out if you can update and increase it. If not, you may want to consider purchasing a separate policy to make up for what it lacks.
In any case, you shouldn’t drop your current coverage until the time you have a new policy in place. This rule applies to every policy holder in the United States, whether they live in Alabama, Iowa, Kentucky, or any other state.
Determine the level of coverage you require
In determining the level of coverage you should purchase, your primary concern is your household. How much do they require to live properly? Think about their expenses, including those for living, education, health, mortgage, taxes, and other essential expenditures. Combine these with the potential costs of burial services.
Take into consideration your other assets, such as investments, savings, personal property, and real estate, too. If you have these, you may opt to minimize the level of life coverage to purchase, so you can lower your premiums. However, if your finances permit you to obtain a higher policy value, by all means, do so.
Compare similar offers
Once you have made up your mind as to the specific type of policy to buy, you can proceed to check out offers from various companies. Make sure you take the time to compare similar policies so you can determine which one most likely will provide you the best value. Other considerations include:
- Possible changes to the premiums and death benefits.
- The non-guaranteed components of the premiums or benefits.
- If you choose whole life, the growth rate of the policy’s cash value component, the length of time you have to wait before you can borrow against or withdraw from it, as well as the interest rate applied if you do so.
- Keep in mind that insurers charge their policy holders differently, and the only way for you to find a plan best suited for your needs is to compare what is available.
Insurance Information Institute: http://www.iii.org/insurance-topics/life-insurance
National Association of Insurance Commissioners: http://www.insureuonline.org/consumer_guide_life.pdf