Life insurance is one of those boring life things that most of us don’t want to face thinking about. After all, life insurance is only something that pays out after we’re gone. It can be hard to even think about facing our own end, let alone plan for it well in advance. It’s also something a lot of us ignore because, well, it won’t really affect us. Unfortunately, for many, if not most people, life insurance is one thing that should absolutely not be ignored.
The truth is, no matter if you have dependents or not, someone will have to be responsible for your funeral costs and financial matters, and leaving that person without the funds to sort everything makes it incredibly difficult for them. Every responsible adult, not dependent on a parent or guardian, should consider a life insurance policy to see if it is the right and smart thing to do.
With that said, finding the right coverage for you, what it will cost, and what it will cover is a long and confusing process. Do you obtain it through a third party? Through your employer? What kind of insurance and how much of it do you need? Read on for a baseline of how to answer these questions and get you on your way to a good life insurance policy.
Finding reputable coverage
We’ve all seen the ads for life insurance on TV, in magazines, in the newspaper, etc. Maybe you’ve even been approached by a friend or family member attempting to sell life insurance policies, or your employer offers one or many different types of policies. It seems like there are a plethora of options on the market with no clear way to sort through them.
Life insurance is particularly difficult to determine legitimacy, since when the policy is paid out, the policy holder won’t be around to see what happens! First of all, you’ll need to read through the fine print of the policy to spot any potential scam threats. You’ll also want to have a good grasp on what kind of policy you need and how much you think you need, which we’ll go over below, so you can spot someone trying to upsell you. Finally, be on the alert for any life insurance scams, which can sometimes take the form of a stranger taking an active interest in selling you a policy that doesn’t fit your needs.
What do you need?
Life insurance is different for everyone. In fact, you might not even really need it at this point, or ever! As yourself a few basic questions about your finances. Do you have debt that won’t be forgiven after your death? Do you have dependents who are financially reliant on you, and need a form of income if you pass away? Is your savings a bit pitiful, and wouldn’t cover funeral expenses as of right now? If you answered yes to any of these questions, you probably need life insurance
The next step is determining how much you need. Review your finances again and this time, write down the total of those questions, so your debt, dependent living expenses, and funeral expenses are totaled. This will give you an idea of how much you’ll need.
It’s possible that the amount of life insurance you should have, will have too high a premium for what you can currently afford. If you have preexisting conditions, are a smoker, and you are older, you can expect to be paying more in premiums than others. Many other factors go into calculating your premium, so make sure to take a look and see what you can do now to lower your costs. Try using this premium calculator to help guide you in approximate premium prices.
Another thing to consider is if your premiums will ever change. Usually, whole life insurance premiums do not go up with age, provided that you’ve locked in your rate when you purchased the policy. This is one of the reasons why getting life insurance early on in life is a good idea, as you are typically healthier and with less risk factors, so your policy will be cheaper.
Once you’ve found your perfect policy, you’ll need to designate a beneficiary. This person will be responsible for your policy payout. It’s obviously important to choose someone who you trust, and who is capable of settling debts, creating accounts for any dependents, and paying any other costs. It is extremely difficult if not impossible for a life insurance company to pay out to someone other than the beneficiary, so make sure you’ve designated someone you’ve talked with and who understands the responsibilities.
Remember to regularly review your beneficiaries for all policies, not just life insurance, to avoid someone who is no longer in your life or trustworthy from being in charge.
Premiums will also be based on what type of life insurance you decide to go with. Whole life policies will pay out lump, fixed sum of funds. Your premium will stay the same, as you are essentially paying into the policy each month.
Term life insurance on the other hand, is temporary and variable, just like many other insurance policies. You are covered so long as you are paying the premium. Term life insurance can be extremely cheap at a young age, but remember that premiums can go up with this one. Depending on the company you purchase a policy through, there may be other life insurance types, so make sure you work closely with the company to find your best fit.
If you are more confused than when you started reading, it’s time to go into a reputable life insurance broker and have a representative break down each policy with you and answer your questions. A good company will thoroughly explain all your options and help you decide what is best for you. Remember that life insurance is confusing for everyone, but by investing in a policy, you’re protecting your loved ones and doing the right thing.