It’s one of the most important financial questions you’ll ever answer:
Do I need to purchase a life insurance policy?
On one side of things, you may come to the immediate conclusion that you have to purchase coverage in the near future.
Conversely, you may also be pulled in the other direction, wondering if this is something you actually need to spend money on every month.
If you’re on the fence, if you don’t know what to do next, it’s time to take a step back and assess your situation. This means something different to everyone, but you should start by answering these five questions:
1. Do you really need life insurance?
Obviously, this depends on many factors, such as your personal life, but there are steps you can take to make an informed decision.
In short, if you have a family, you’ll want to buy a life insurance policy. Should you pass on, the death benefit can be used for everything from final expenses to paying off a mortgage (and much more).
However, even if you don’t have a family, life insurance may still be a good idea. For instance, you may want a policy to help with final expenses, as you don’t want your extended family to get stuck in a bad spot.
Now, you can buy life insurance on someone else, but remember, there are rules to do it properly (and legally).
Also, some people purchase a policy as a means of leaving something to their favorite charity or organization.
Only you know if you truly need life insurance, but most people find that it’s better to have it than to take a pass.
2. How much coverage do you need?
Again, this depends on your personal and financial situations, however, there are some things you can do to help make a better decision.
First off, find out what you can afford. While life insurance is important, it must fit into your budget. If it doesn’t, you could find yourself missing a premium payment in the future, thus losing coverage altogether.
Secondly, take into consideration the needs of your family and your other financial investments.
While there is no rule in regards to how much coverage you should purchase, many people start out by multiplying their annual income by 6x to 10x. If nothing else, this gives you a good starting point. From there, you can adjust the coverage based on your budget and needs.
3. What type of life insurance is best?
This is a question that stumps many people, as they don’t fully understand what they’re getting with each type of policy.
Generally speaking, you have two options:
- Term life insurance
- Whole life insurance
As the name suggests, term life insurance covers you for a special period of time. For example, a 15 year term life policy will provide a death benefit to your beneficiary if you pass on within 15 years.
However, if you outlive your policy, it expires and you are then forced to purchase coverage once again (if you desire).
With whole life insurance, there is a guaranteed death benefit as long as you meet your premium completely and on time.
It often costs more than term life insurance, but the guarantee is what many people are looking for.
Plus, many whole life insurance plans accrue cash value over time.
The best way to approach this question is to learn more about both types and receive quotes for term and whole life coverage. This will give you what you need in order to compare the finer details, benefits, and drawbacks.
4. Which life insurance company is best?
At some point, you need to move forward with the purchase process. Of course, you can only do this once you have a clear idea of the companies you will consider doing business with.
Some of the factors to consider include:
- The financial rating
- Consumer reviews
- Customer service
- Availability of products
- History of the company
As you compare these factors, you’ll find that some companies are better than others. At that point, you can narrow your focus in hopes of finding the company that most closely aligns with your wants, needs, and goals.
5. How do you finish off the process?
You can do as much research as you want, but at some point you need to finish off the process. In other words, you want to purchase a policy.
Here’s the good thing: once you locate a company and know what you’re buying, your representative will walk you through the process from start to finish.
From the application to the medical exam to making your first payment, there’s no guesswork involved. You’ll have somebody on your side to show you the way.
If you’re going to spend money on life insurance, you might as well get the policy that’s best for you and your family.
By answering these five questions, you’ll find yourself in position to come to an educated decision. Once you have a policy in place, you’ll feel much better about the future.