How to find coverage that meets your needs and budget
Life insurance is an important element of your family’s financial security and well-being, but if you’re like most people, the prospect of looking for the correct kind of coverage may be intimidating. Fortunately, you can follow these eight simple steps to get started.
1. Determine whether you actually need life insurance
Although the majority of individuals do, this is not the case for everyone. You probably don’t need life insurance if no one financially relies on you, if you have no debt, and if your estate would be able to pay its own taxes and expenditures. If you don’t fulfill these requirements, you’ll almost certainly need individual life insurance.
2. Calculate how much life insurance you need
we have two important questions to ask:
What financial requirements will your loved ones have once you pass away? Consider three types of criteria for simplicity: (1) ultimate costs; (2) debts; and (3) income requirements.Then divide your survivors’ financial resources (step #2) by their financial requirements (step #3) to calculate the size of the insurance you should purchase. Many people are underinsured as a result of skipping or avoiding these processes (such as simply buying a multiple of annual income). See How Much Life Insurance Do I Need? for more information on determining the correct amount of life insurance.
- What financial resources will your loved ones have once you pass away? Consider three types of resources for the sake of simplicity: (1) Social Security and other retirement-related survivor benefits; (2) group life insurance; and (3) other assets and resources. It’s also vital to know when these resources will become available—for example, social security survivor payments are paid immediately to a surviving spouse with dependent children, but only after age 60 if no children are present.
3. Consider any additional goals you may have for your life insurance policy.
Some life insurance plans have a savings option that may be used for something other than paying out death payments.
4. Determine what type of life insurance best meets your needs
Term life, whole life, and universal life are the three basic forms of life insurance plans. If you require the insurance for only a short amount of time, or are on a tight budget, a term policy, which has cheaper rates, may be a suitable option. A whole or universal policy, on the other hand, may be a better option if you require insurance for the rest of your life and want to save money.
5. Find out if you need to add any “riders” to the policy
There are two options to consider: premium waiver and assured insurability. Some policies contain one or both of these features as part of the basic contract, but if they don’t, it’s usually a good idea to include them. If you are handicapped, a waiver of premium pays your life insurance premium. Guaranteed insurability allows you to increase your death benefit without having to provide further proof of good health.
6. Shop around
When purchasing life insurance, there are several methods to save money, but not all of them include paying a lower premium right away. However, because life insurance is a highly competitive industry, rates can differ dramatically from one company to the next.
7. Decide whether to pay premiums annually
In most circumstances, paying annually rather than in installments is preferable since paying smaller amounts more frequently generally results in a relatively substantial extra charge.
8. Tell your beneficiaries about your life insurance policy
Once the policy is issued, notify your beneficiaries about the firm that issued it, where they may obtain a printed copy of the policy, and any instructions you have for them regarding the death benefit. While it is uncommon for people to be uninformed that they are the beneficiaries of a life insurance policy, it does happen, and you want to be sure the benefit is not lost. Also, keep your records so that your beneficiaries may quickly access them.