Life Insurance Can be Confusing for Someone on the Market for it, but it is a Worthwhile Investment to Secure the Future of Your Family and Other Major Investments.
Studies indicate that more than half of the households in the U.S. lack life insurance coverage. As with any other pre-need financial products, the life insurance policy comes with a large number of technical terms, stipulations, and policy riders. This information overload can sometimes make the process of purchasing life insurance quite tough. This is also the main reason why people tend to set this policy aside for the future or not purchase at all, which would mean that they are missing out on the golden opportunity of securing the future of their loved ones.
A life insurance policy is designed to provide financial security for a person’s family members and other named beneficiaries in the event of their death. The policy benefits can be used for covering the costs of the funeral as well as the daily life expenses of the bereaved. This policy has also been designed as income replacement which can cover payments such as tuition, mortgage, and other major expenses.
If a person has a steady stream of income coming his way, then he or she must consider purchasing a life insurance policy. Even without an agent helping them out, they can start considering this purchase on their own by first determining the value of the coverage they would require. This is the first step to buying insurance coverage and it can be accomplished by assessing what the family would need financially if the insured was no longer around. This equation should include the income that will be lost, the outstanding debts, and all the major and minor expenses. Expenses will range from tuition, medical expenses, and the day to day expenses.
There are a number of websites offering calculators and other tools that can help one compute for the value of the policy to be purchased. These tools would base the computation on a person’s financial information as well as their personal circumstances, such as the number of dependents, age, and health. These sites would also offer estimates of all the supplemental coverage that a person can purchase along with the basic policy.
It should not come as a surprise if the recommended coverage would be in the millions. A one-million coverage is quite typical because as a general rule, younger people should look at buying a coverage that is around five to ten times the annual income they make.
Once you have your numbers down, it is time to decide whether to purchase a term life or a permanent life insurance. Term life policies provide coverage for a pre-determined period of time while permanent life will last for a lifetime. Most insurance agents and financial advisers would recommend term life insurance for the average consumer. It is affordable and uncomplicated and makes a lot of sense when you want to secure your children’s college education and pay off your mortgage and all your other debts over the next 15 to 30 years. Your beneficiary can opt to receive the benefits in a lump sum payment. The cost of premiums will be the same during the course of the contract.
Permanent life or whole life as it is sometimes called is the opposite of term life in such that it will not expire after a number of years. It is way more expensive than term life and it can be set up in a manner that is similar to a savings account that is tax deferred. There is another policy option which offers return-on-premium which will give back the money you put in after the term expires. Insurance experts would advise you in this situation to take out the savings from the term life to be invested in another manner.
If you are leaning towards a term life policy, you should look for one that gives you the option to switch to a permanent life policy much later on. Convertible policies may prove useful if you acquire a chronic ailment that would disqualify you for another life insurance coverage after the term life expires. But you have to be prepared for a higher premium cost if you decide on a convertible policy.
Once you are decided on the type of life insurance you would wish to purchase the next thing to look out for are the details of the policy, particularly the rates, ratings, and returns. Look for opportunities to save such as buying a term life policy and paying for the premium on an annual basis if you are able to. Annually settling your life insurance premium will get rid of the extra fees associated with monthly payments.
Do not be taken in by the grand illustrations of dividends for permanent life insurance policies. Be aware that the administrative costs and fees of permanent life policies can run high to a point where it can drag down the benefits. Be wary about very low premiums and check out the financial soundness of the insurance company offering them. You can check out the websites of rating agencies such as A.M. and Standard & Poor’s to determine the rating of the insurance company you are planning to purchase your policy from.
What you should not do is postpone your purchase. The older you get, the higher the premium will be. It is a good idea to get your coverage while you are young and healthy so you can breeze through the medical screening process. Expect a higher premium rate if you smoke or if you have a health condition.
Do not allow your policy to lapse. Life insurance is the first thing a household tends to let go off when finances get tough. Keep in mind that the premiums you have paid will never match the cash value of the policy that you decide to surrender at an earlier time as term life never builds up cash value.