If you’re like most people, you may find it challenging to shop for the right type of life insurance policy. Life insurance can play a vital role in financial stability and well-being for your family. Here are eight simple steps you can follow to get started.
Assess your need for life insurance
Not everyone does, but most do. When no one depends on you financially, if you have no debt and would leave an estate with enough cash to cover its own taxes and expenses, you probably don’t need life insurance. You will probably need individual life insurance if you do not meet these criteria.
Calculate the amount of life insurance you need
Two important questions need to be answered:
- After your death, what financial resources will be available to your survivors? Let’s consider three categories of assets as an example: (1) social security and other survivor benefits from retirement; (2) group life insurance; and (3) other assets. As well as knowing when these resources become available, it’s important to know when they will come into effect – for example, social security benefits for surviving spouses with dependent children are payable immediately, but only after age 60 for those without children.
- In the event of your death, what financial needs will your survivors have? Let’s consider three categories of needs: (1) final expenses; (2) debts; and (3) income requirements.
Subtract your survivors’ financial resources (step #2) from their financial needs (step #3) to determine how much life insurance to buy. Many people are underinsured because they take shortcuts or skip these steps. See: How Much Life Insurance Do I Need? For more information on determining the right amount of life insurance.
Think about other goals you may have for your life insurance policy
Life insurance policies can include savings features that can be used for purposes other than paying death benefits.
Select the type of life insurance that best suits your needs
Life insurance policies can be categorized into three types: term life, whole life, and universal life. Term insurance may be a good solution if you need coverage for only a short time or have a limited budget. It has lower premiums and is good for those with short-term insurance need. A whole or universal policy may, however, be a better option if you need the insurance until you die and want to accumulate savings.
Determine if any “riders” need to be added to the policy
The two things you should take into consideration are the waiver of premium and guaranteed insurability. If you are disabled, you can get the assistance of a waiver of premium, which will cover your life insurance policy’s premiums. Some policies include one or both with the basic contract. Guaranteed insurability allows you to increase the death benefit without proving that your health is acceptable.
Quotes for life insurance can vary greatly from company to company due to the fierce competition in the industry. When it comes to life insurance, there are many ways to save money, but saving money doesn’t always mean paying a lower premium.
Decide whether premiums should be paid annually
Paying by installments is usually better than paying annually because there is often a relatively large fee for paying smaller amounts more frequently.
Inform your beneficiaries about your life insurance policy
After the policy is issued, let your beneficiaries know which company issued the policy, where to find the paper copy, and what you want them to do with the death benefit. While it is rare for people to be unaware they are beneficiaries of a life insurance policy, it does happen, and you want to make sure that the benefit is not lost. Store your documents in an easily accessible location so that your beneficiaries can easily access them.