Life insurance is the type of insurance that promises to pay a sum of money to assigned beneficiaries in the event of client’s death. It helps in providing financial protection and peace of mind for your loved ones as well as aiding in the achievement of our long-term goals. Buying life insurance can be a deciduous task as there are different policies, features, and costs. However, for you to make the right decision, here are seven things that needs to be duly considered before buying life insurance
What Must Be Considered before Buying Life Insurance
- Your need for life insurance
The first thing to consider is whether you need life insurance at all. Generally, you need life insurance if you have dependents who rely on your income such as a spouse, children, parents, or siblings. You may also need life insurance if you have debts such as a mortgage, car loan, or student loan that you do not want to leave behind for your family to pay. You may not need life insurance if you are single, have no dependents, have enough savings, or have other sources of income such as a pension or an inheritance
- Coverage Amount
Another thing that must be considered is how much coverage you need. This depends on your personal and financial situation such as your income, expenses, assets, liabilities, and future plans. A common rule of thumb is to multiply your annual income by 10 to 15 times but this may not be enough for everyone. You may need more coverage if you have a large family, a high standard of living, or a long-term goal such as sending your children to college or retiring comfortably. You may need less coverage if you have a small family, a low cost of living, or a short-term goal such as paying off your debts.
- Type of Policy
You must also consider the type of policy you want. There are two main types of life insurance: term and permanent. Term life insurance provides coverage for a specific period of time such as 10, 20, or 30 years. If you die within the term, your beneficiaries will receive the death benefit. If you outlive the term, the policy will expire and you will receive nothing. Term life insurance is usually cheaper and simpler than permanent life insurance but it does not have any cash value or savings component.
- Cost of Premiums
You must also consider how much you can afford to pay for your premiums. Premiums are the amount of money you pay to the insurance company to keep your policy active. The cost of premiums depends on various factors such as the type, amount, and duration of coverage, your age, health, lifestyle, and family history, and the insurance company’s rates and policies.
- Features and Riders
Another important factor that must be considered is what features and riders you want to add to your policy. Features are the basic elements of your policy such as the death benefit, the cash value, and the surrender value. Riders are the optional benefits that you can attach to your policy such as the waiver of premium, the accidental death benefit, the disability income, and the critical illness. Features and riders can enhance your policy and provide more protection and benefits but they may also increase your premiums and reduce your cash value.
- The Insurance Company
Now that you’re sure of your need for life insurance and have decided on the perfect policy for you as well as the features and riders, then it’s time to consider the perfect insurance company that meets your needs. There are many insurance companies in the market, but not all of them are reliable and reputable. You should look for an insurance company that has a good reputation, a strong financial position, a high customer satisfaction, and a low complaint ratio. You should also look for an insurance company that offers competitive rates, flexible policies, and excellent service.
- The Beneficiary
Your beneficiary is the person or entity who will receive the death benefit from your policy when you die. You can name one or more beneficiaries and you can specify the percentage or amount of the death benefit that each beneficiary will receive. You can also name a contingent beneficiary, who will receive the death benefit if your primary beneficiary dies before you or at the same time as you.
You should choose your beneficiary carefully and wisely, as this is the most important decision you will make when buying life insurance. You should consider your relationship, your obligations, and your wishes when naming your beneficiary.
