Life insurance is an essential part of life that isn’t discussed enough. Of course, no one wants to talk about the different plans and coverage in their day-to-day conversations; but it’s important to have a general idea about it so you can safeguard your family from any financial trouble that may arise in the future.
With the help of this life insurance buyer’s guide, you can put your mind at ease and make an informed decision.
Buying life insurance
When you decide to buy a life insurance policy, you would want a plan that fits your budget and provides the necessary financial support to you or your loved ones. So your first step should be to decide how much you need and how much you can afford. Then you can move on to find the type of policy you want and like. We will discuss that too in this life insurance buyer’s guide.
A good way to decide how much life insurance you need is to figure how much income your dependents would need in the event of your death. Life insurance can be a source of cash for handling taxes, mortgages, and illnesses. Hence, your policy must provide the necessary financial support if your income is no longer available.
Choosing the right type
Every life insurance policy pays off a specific amount of money when the insured dies. But not all policies are the same. Below are the 3 basic types of life insurance that we’ll discuss in this life insurance buyer’s guide:
- Term life insurance
- Whole life insurance
- Endowment insurance
Just remember that no matter how fancy the policy title may seem, all policies contain one or more of the 3 basic types.
Term life insurance provides coverage for a specific period of time. This is the “term” of the policy. If the policy owner dies within the set term of coverage, their beneficiaries will receive a check from the life insurance company. Once the term is over the coverage terminates unless you convert or renew the policy.
A term life insurance policy can last anywhere from one year to 40 years with coverage amounts ranging from $50,000 to millions of dollars. Some term insurance policies are extendable for 1 or more additional terms if your health has changed. However, each time you extend the policy, the premium gets higher.
Whole life insurance
Whole life insurance is designed to last your entire life, often has fixed premiums, and accumulates a cash value over time. In general, whole life insurance is the most comprehensive and fully featured type of permanent coverage. This means that it typically has the highest premiums as well.
Although premiums are higher than term life, whole life policies develop “cash value” which you may avail if you like. You can either take the cash amount or use it to buy some continuing insurance protection.
This type of insurance pays a sum amount to you if the policyholder lives to a certain age. And if you were to die before then, the death benefit would be paid to your beneficiary. Premiums are higher for endowment insurance thus are not a very popular type of insurance amongst Americans.
Thus to summarise this life insurance buyer’s guide – you need to know how much you can afford, what are the benefits and which type of insurance fits your requirement the most. Never buy life insurance without proper research – check the plans and compare, consult with an insurance agent and your family members, and only then make a decision.