Life insurance is undeniably helpful in an individual’s financial strategy. It provides financial security for the chosen beneficiary and several flexible options to allow other financial decisions to be made. It is in this principle that people who have made their life insurance purchase anchor their decision and have enjoyed the benefits so far. But despite this growth, many people are still hesitant to even discuss the idea of life insurance or even confront its underlying advantage. It is understandable though because even just thinking about buying life insurance can already be intimidating and frustrating. There’s a lot of information to take in and it entails commitment. But with the right information, you can make more sound judgment and make the best out of your decision for you and your loved ones.
Read on below to learn about the important questions to ask before buying life insurance. Hopefully, after reading this, you’ll be able to determine the answers to these questions so that you’ll be more confident in your decision.
Why do you need life insurance?
Just like all purchasing decisions, you have to determine first why you need life insurance. The main purpose of life insurance is to provide the chosen beneficiary – usually the family – with funds after the death of the insured. Life insurance can be used to shoulder future financial necessities like daily expenses, taxes and mortgages, education fees, loans, and other obligations. Life insurance also has features that allow the policyholder to use a portion of the total benefit to fund important needs like long-term care. Additionally, some insured individuals name charity institutions and organizations as their beneficiary. To simplify, you might need life insurance if your immediate family depends on you financially and/or you want to secure the funds for costs that you or your family might incur in the future. You might also consider life insurance if you have charitable advocacy. In case you are financially independent and stable, you might consider having life insurance as a financial back-up tool. In fact, you might want to start this as young as possible because payments are cheaper compared to having them later in life.
Who will be the beneficiary?
A beneficiary is a person or entity who will receive the proceeds of your life insurance policy. Usually, it is the spouse or children of the insured but it could also be other or non-family members (a friend) or an organization. Depending on state laws and specific policy conditions, it is best to name a beneficiary that is of legal age because a minor may not yet be able to receive the benefit at the time being. If the beneficiary of your policy is a charity or an organization, it is best to state a formal instruction on how you intend the benefit to be used. This is often overlooked but this is indeed very important to be determined first hand because this is the accompanying reason why you are getting life insurance in the first place.
Who should you talk to for expert advice?
You can decide to put this at the end of your priorities or wherever you see fit but for the sake of being consistent, we are going to talk about this hereon. Information about life insurance should only come from a competent and well-informed person on the matter. Unless it is also their profession or expertise, a neighbor, colleague, friend, or relative can’t be your insurance expert. Most people consider finding the person whom they think can give them the best advice first and let that person give all of the information they require. While this may seem a good alternative, most people cannot tell the difference between independent advisors and insurance brokers/agents. Moreover, since they have no prior knowledge about life insurance, they will most likely depend their decision to whatever the person they talked to discuss with them. This places harmful precedence on the financial decision they are going to make. This is not to discourage you from inquiring from prospect companies. In fact, it is highly advised that you seek out for the best-rated companies that have ethical business practices and positive reviews. You should seek out for the best agent or advisor that can give you the most comprehensive and fair advise there is. Best does not necessarily mean the most expensive or most professional. As long as an agent or advisor have your best interest at heart and you trust them, you can have a good start. It is highly recommended though that you “shop around” i.e. life insurance uk compare the information that you receive from different provider to make a more informed judgment.
When should you buy life insurance?
The best answer to this question is already given somewhere in this article but to give you more perspective, most people buy life insurance in their late thirties to early forties. This is because it is at this age that most people are more open to future plans as they approach retirement. Ideally and realistically advised though, an individual should be considering life insurance as early as mid-twenties. Of course, a big determiner for the answer to this would come from your capacity to afford the insurance itself (more on that later). Even if you want to start at the ideal age but can’t afford to keep the policy in force, it still wouldn’t be feasible.
How much coverage do you need?
The decision to buy life insurance (and the type) is largely affected by how much coverage you asses you will require. This can be calculated by a lot of tools available including online insurance calculators. But since a beginner might still get fuzzy on terms, the easier and simplest way to do this (or just to get an estimate) is by determining the total funds that your beneficiary might require to finance certain things after your death. How many funds will your family require to absorb the financial responsibilities after your death? Be sure to include final costs like funeral service, unpaid medical bills, and the like to get the best estimation possible. You can also calculate this by assuming that your total benefit will work with your other assets like cash on hand, receivables, savings, and/or investments. This should give you a clear estimation of the amount of coverage to get. You can always increase the coverage as you proceed with this.
How will you pay for it?
Another often overlooked question is the means to pay for the insurance – a big part of the commitment. You have to know that buying life insurance entails a commitment to pay in 15 or more years’ time. Before you make any more move, you have to be certain that you can comfortably afford to pay for the premium rate at a long period of time to make the policy in force. A good way to asses this is by simply considering the scenario of still being able to pay even under difficult financial situations. Your ability to pay will also determine which amount and type of coverage will suit you. In addition, as mentioned earlier, your age can be your advantage with this. The younger the age, the cheaper the cost. It’s good to remember though that you can always find a policy that will work for your budget.
What kind of policy do you want?
After you figure out the amount of coverage you’ll need, you can then ask what type of policy will work best for your needs. Life insurance is categorized into two main types: term life and permanent life insurance. Term life insurance is simple and usually more affordable. It is set for a determined period of time. Permanent life insurance, on the other hand, is more expensive compared to term insurance. It is because you have it as long as you pay for it. The good thing about permanent life insurance is that it builds cash value over time that you can use for any purpose. There’s a lot of sub-types for both classifications that’s why we recommend you to have a personal and in-depth talk with a trusted advisor regarding this.
What options do you want with your policy?
Finally, after determining the type of life insurance that will work for you, you now have to ask about the options that you want with your policy. These options are provisions that amend the conditions of the policy. They are commonly coined as “riders”. Usually, these riders are chosen to add benefits to a policy. Some of these are Accelerated Death Benefit, Nursing Care, Accidental Death, Special Care, Children’s Term, and Common Carrier riders. Some of these riders are free and some are not. Some have a basic structure and some have special features. It varies from one provider to another.
The idea of buying life insurance is overwhelming, but that is also the reason why we need to discuss it and be informed about it as well as possible. Even after reading this guide, you still have a lot more to know. It would be helpful to always keep an open mind and to never hesitate to ask questions. A trusted expert can help a lot in pointing you to the right path. All of these can help you decide and truly enjoy the life of being insured.
David Robson is the founder of Complus Alliance. He has been writing about different topics for almost 10 years. He’s main focus is delivering quality insights to a wide array of audience.