8 Steps to Buying Life Insurance
If you’re considering purchasing a life insurance policy, the following steps can help you to make the most of your needs and budget.
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1. Review your needs.
You should speak to an insurance agent to discuss your specific needs and your budget. A certified insurance agent can help you to understand the advantages of the various policies available.
2. Figure out how much coverage you will need.
What percentage of your family’s income does your salary account for? Do you have any other financial dependents outside of your family? Will your family members be able to pay for your final expenses and any outstanding debts you have? Answering these questions can help you to understand how much coverage you will need, and balance that with how much you can afford to pay for on a monthly or annual basis. You will want to ensure that you purchase enough life insurance to cover any expenses at the time of your death.
3. Review your current policy.
If you are already the owner of a life insurance policy, do not cancel it until you have received your new policy. You will be given a period of time to review the new policy and decide if it suits your needs. In certain cases, you won’t have to cancel your policy to make changes.
4. Compare different types of life insurance policies.
There are two main types of life insurance: term insurance and permanent insurance. Term insurance, as the name suggests, is purchased for a set period of time—for instance, ten or twenty years. Premiums tend to be lower in earlier years, but premiums do not build up to create monetary value which you can use in the future. Permanent or cash value life insurance, on the other hand, includes policies that do not have a set term. There are three types of permanent life insurance: variable, universal, and whole life.
5. Can you afford the premium payments?
Before you purchase your policy, make sure you can afford the premiums. Remember that in some policies, the premium increases later on. If that is the case with your policy, will you still be able to afford it?
6. Speak to an insurance agent to evaluate the future value of your policy.
Does the cash value of your policy grow quickly? A number of policies have a low cash value in the early years but grow quickly in later years. Others remain level over time. Ask your agent to show you a comprehensive, yearly display of the value and benefits.
7. Understand the renewal process.
Term insurance can be renewed after the initial term is up. But remember that your premiums will go up when you renew your policy. It’s a good idea to also ask if the policy has any age limitations. Some term policies deny you the right to renew after you reach a certain age.
8. Review the policy’s fine print.
It’s important to make a thorough analysis of the policy before you decide. Do the premiums vary according to year? Do the benefits accumulate over time? What part of the premiums or benefits is not guaranteed? Make sure you know the answers to these questions before you proceed.
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