Life insurance is a legal contract between the insurance policyholder and the insurer, wherein the insurer promises to pay a beneficiary a sum of money in exchange for a premium upon the death of the insured. Depending on the contract, terminal or critical illness may also trigger the death benefit. Regardless of the specific policy type, life insurance offers you a way to buffer your loved ones from the resulting financial hardships of your passing. These 10 tips will help you navigate the market so you end up with a suitable coverage.
1. Ensure It Covers All Your Needs
Many types of life insurance policies are available in the market, and they are divided into term and permanent insurance. The former only covers you for a set period of time, while the latter covers you for as long as you keep paying premiums. Moreover, permanent insurance products often pull double duty as investment vehicles in the following forms:
- Whole life insurance is a fixed premium return product with a savings component. The policyholder can withdraw or borrow against the growing cash value of their policy.
- Universal life insurance allows policyholder flexibility in terms of the premium amount and includes a savings and investment component.
- Variable life insurance is similar to universal life insurance; however, the benefits are linked more directly to the performance of the investment and can shift the risk to the policyholder.
2. Make Sure You Can Afford the Premium
Term insurance is much cheaper and may suit those who cannot afford permanent insurance. Of course, it is also a better option if you want a set period of coverage. Permanent life insurance is more expensive because it can last the entire life of the policyholder and has additional fees due to the investment component.
When deciding on a policy, make sure you can budget in the premium over the long term or for the entire life of the policy. Otherwise, a suspension of coverage would waste all the premiums you've paid up until that point. No one knows their future, so it's advisable that you have money set aside, especially if the policy you want has a variable premium.
3. Shop Around
Research and talk with various insurers and agents before settling on a policy. This lets learn more about the types of coverage available and their associated costs. Compile the data and compare it on your own so you find an affordable and reasonable price for the desired coverage.
4. Carefully Weigh Extra Features or Benefits
Many insurers offer various other benefits to a life insurance policy for an additional fee. This may include accelerated death benefits, accidental death, terminal illness, or return of premium riders. Due to the additional cost, first ensure it is necessary and worth it. For instance, a healthy middle age adult with a clean family medical history has a lower likelihood of benefiting from a terminal illness rider and the extra cost. In addition, some are just not worth it. It's best to avoid lender-offered policies that would pay for your mortgage or other debts. Straight-up policies typically provide more coverage for less.
5. Never Lie to Get a Lower Premium
This is particularly a very risky move. If you lie on your life insurance application, and by chance your insurer finds out, it may deny coverage, cancel the policy cancelled without a refund of already paid premiums, or ask for a much higher, required premium. In addition, if you unexpectedly die and the insurer finds out about your lie, your beneficiary will no receive the death benefit, nor a refund of the premiums you paid throughout your life. Lastly, if you die from a condition the insurance company has no idea about, there is a possibility that the policy will not pay.
6. Always Pay the Premiums
Not making timely payments may lead to extra charges or cancellation of the policy. Some insurers may be more understanding or allow a certain late period before suspending coverage, but it's important to pay the full amount on time. For convenience, you could set up auto-payments from a savings account.
7. Review the Policy Regularly
This ensures that the insurance coverage is up-to-date in terms of the changes that may have occurred in your life since you purchased it. Consider reviewing it at the end or beginning of each year. Doing so also helps you balance your financial situation and other plans, such as marriage, having a baby, retirement, selling your house and other major life changes. It is also important if you need to convert your term insurance to a permanent policy in case your health changes for the worse. This is because you may not be eligible to for a new policy.
8. The Earlier the Better
Buy life insurance when young because it will always cost much cheaper. More often than not, the younger you are, the less you will pay for more coverage as compared to an older individual.
9. Tell Your Beneficiary
When you die, your beneficiary must be aware of the existing policy in order to follow-up and file a claim. No insurance company is going to come out to reveal of the death benefits to the listed beneficiary.
As there is a large variety of coverage options and benefits available in life insurance products, look to these tips as a way to get your feet wet and stop you from making any rash or imprudent decisions. Take the time to carefully consider the many policies and features available before settling on one.