8 smart steps for buying life insurance | III

What to know when buying life insurance

Video What to know when buying life insurance

Life insurance can be a vital financial planning tool, but finding coverage that meets your goals and budget can be challenging without guidance. don’t worry. A few simple steps will help you focus on the essentials of buying a policy that’s right for you.

check if you need life insurance coverage.

yes, life insurance is helpful but not necessary for everyone. consider purchasing a policy if any of these apply to your situation.

  • someone is financially dependent on you and may still need significant financial resources after your death.
  • Your estate will not have enough liquid assets (cash, investments, property, or other salable items) to cover your taxes and debts, which will erode the inheritance you plan to leave behind.
  • you want to cover your funeral and burial expenses at least so that your assets remain intact for your legacy and heirs.
  • Otherwise, you may not need life insurance. You may also consider life insurance as a viable strategy for leaving a charitable legacy for a cause you support.

    calculate how much life insurance coverage you need.

    This part of the process can be overwhelming for many people, but it doesn’t have to be. Take a quick snapshot of your finances and answer the following three crucial questions:

    1. What financial resources will be available to your survivors or heirs after your death? Notice three main categories of resources:
      • social security and other retirement-related survivor benefits;
      • group life insurance (for example, a policy you may have through an employer); and
      • other assets and financial resources
        1. when will these resources be available? For example, Social Security survivor benefits are paid immediately to a surviving spouse if there are dependent children. Otherwise, your spouse may not have access to Social Security until after age 60.
        2. determine what your survivor’s financial needs may be after your death. For simplicity, you can focus on three categories of requirements: Final Expenses, Debts, and Income Needs.
        3. Next, subtract your survivors’ financial resources from your financial needs to determine how much coverage to buy. Many people are underinsured, often because they skip these steps or take a shortcut (such as simply buying a multiple of annual income). For more help determining the right amount of life insurance, see: How much life insurance do I need?

          decide on your financial goals for your life insurance.

          The general reason for buying life insurance is to leave financial resources for who or what is important to you. Premium payments to the insurance company go toward the death benefit, the financial payment after your death. Many people plan this money to take care of final arrangements, cover the living expenses of loved ones, or support a favorite cause. however, you can also use a life insurance policy to build savings, maximize your retirement income, or provide a post-mortem income stream for your survivors.

          determine which type of life insurance best suits your financial needs.

          You may have heard of several categories of life insurance, including term life, whole life, and universal life. each of these comes with fundamental distinctions. consider how these differences might work for you.

          Term life policies offer a specific death benefit payment for a specific period of your life, such as five, ten, 15 or 20 years. term life insurance coverage for most people tends to carry lower premiums; however, the longer the term, the more expensive your premiums can be. If you want insurance coverage for only a specific period of time or have a limited budget, a term life policy may be a good option.

          However, what if you want to purchase insurance coverage for several decades until your death? Or maybe you’d like the option to use some of your premiums to build savings? a comprehensive or universal policy could be a good option in any of these cases. Basic whole life insurance carries a fixed premium and promises a minimum rate of return on dollars invested, building up the cash value of the policy. A universal life insurance policy may offer the ability to increase the death benefit or adjust premium payments.

          Find out if you need to add “additional clauses” to the policy.

          Life insurance policies offer primary benefits depending on the type of policy you purchase. But your coverage can be expanded or customized through riders, optional additions to a life insurance policy that provide supplemental coverage, or benefits you wouldn’t receive with a standard policy. adding some riders may increase your premiums, while other riders may be free.

          There are two riders you may want to consider: Waiver of Premium and Guaranteed Insurability. Some policies come with one or both included in the basic contract, but if not, it’s usually a good idea to add them. the premium waiver pays the life insurance policy premium for you if you are disabled. Guaranteed insurability allows you to increase your death benefit without providing additional evidence that you are in acceptable health.

          check around to find the best life insurance coverage for you.

          There are many ways to save money when buying life insurance, but they don’t always involve paying a lower premium right away. however, life insurance is a very competitive business and therefore quotes can vary significantly between companies. Keep in mind that the important thing is that you get the coverage that fits your budget and financial goals. If you choose to work directly with an agent, make sure your agent knows your financial situation and takes the time to explain your options in easy-to-understand terms.

          decide whether to pay annual premiums all at once or in installments.

          You may have the option of paying an annual lump sum or spreading the annual cost into smaller, more frequent payments. it may be more cost-effective to pay annually as there can often be a relatively high additional charge for paying in installments. decided what works best for you.

          tell your beneficiaries about your life insurance policy.

          Once you’ve purchased the policy, tell your beneficiaries which company issued it, where to find the paper copy of the policy, and any details about what you want them to do with the death benefit. While it is rare for people to not know they are the beneficiary of a life insurance policy, it does happen and benefits may go unclaimed. Don’t forget to save your documents so your beneficiaries can easily access them.

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