Thinking of getting life insurance? It may feel scary, overwhelming, and intimidating at first, especially for first-timers. While there are tons of options available, it can get pretty confusing particularly when you start getting into the details. It can make anyone think twice.
However, life insurance can certainly impact not only your life but your family as well. This is why understanding how it works is crucial before you make a decision on what type of insurance to get. The good news, on the other hand, is that not all types of life insurance will cost an arm and a leg. There are some types of policies that are more affordable.
Hence, we’ve come up with a guide to help you understand how life insurance works. We’ll help you make the right decision for you and your family.
If you have a family member depending on you financially, then we highly advise you to get a life insurance. This is also applicable to people who are in debt, have mortgages or loans to pay. If your savings isn’t enough to cover your dependents’ living expenses, you need to prepare them for the future. What better way than to get a life insurance to protect your loved ones and keep them financially secured.
The most common reason why someone buys life insurance is so that they can provide financial support to a spouse or child they may leave eventually behind. Your dependents will receive your death benefits where they can use it to cover funerals costs, loss of income, education, bills, debts, and living expenses.
If you’re married, your spouse is usually the first person on your list. On the other hand, if you have children, you can name them as your beneficiaries too. Some people have multiple beneficiaries including relatives or a charity. You can update your beneficiaries from time to time in case you want to alter your list.
Just make sure that your beneficiaries are aware of your policy. This way, they need to know where to find the paperwork and details and how to claim it when you pass away.
1. Evaluate your needs.
When you’re looking for a life insurance, the first thing to do is asses your needs first. Figure out the type of coverage you want and how much you can afford without messing up your monthly budget. Use a coverage calculator to help you determine your budget.
To get you started, you need to be honest with yourself and factor in your debt, if any. This will help you get a realistic estimate of what you really need and how much you can spend on it.
2. Review your options.
Knowing your options can help you decide which type of insurance to get. The two most common types are term life and permanent life or also known as whole life insurance.
Term life insurance provides coverage for a certain period of time, particularly 10, 20 or 30 years. If you die within the coverage of your policy, your beneficiary will receive the face value. Compared to whole life insurance, term life costs less upfront. However, the premiums can increase over time within the term as well as the end of the contract.
Meanwhile, permanent life insurance provides coverage for your entire life. At the same time, it also has a cash value component. It also offers additional features such as access to your cash value.
Initially, permanent life insurance may appear to be more expensive. However, the rates stay the same throughout your policy. Hence, it helps you set a monthly budget without worrying that the price may go up.
3. Calculate the cost of your premiums.
Identify what type of coverage you want and need as well as how much insurance you intend to buy. So, how do you determine how much you actually need to pay for your insurance? The contributing factors include your age, lifestyle, and medical history. This is why older people have higher premiums and coverage for younger people are less expensive.
4. Identify how much coverage you need.
While most people prefer the idea of lifetime coverage, some people don’t necessarily need it. For those who want to protect their children from financial burden, identify how long your kids will most likely need financial support. The most ideal coverage is until your youngest turns 21 years old or when your child graduates from college.
Therefore, most policy owners purchase a 20-year term. Meanwhile, some get an insurance until they retire. Also, consider how much it will cost to replace your policy once it expires.
5. Consider writing your policy in trust.
So, what exactly does it mean? This simply means that after you die, your dependents can receive payouts without any hassle. At the same time, they get it with the lowest tax charge possible.
The best way to do this is to write your life insurance policy in trust. The payout from the policy often does not include your estate due to inheritance tax.
One of the dilemmas of most people is convincing themselves when to buy insurance. Remember that the older you get, the more expensive your premiums will be. So, the best time to get insurance is while you’re young.
Also, don’t hold back on your coverage. A lot of people are underinsured without being aware of it. The insurance rates may vary based on the term policy.
However, don’t just go for the cheapest because it doesn’t always mean that it is best for you. Make sure that the policy meets your needs. Also, find a reputable, reliable, and trustworthy life insurance company.