Life insurance helps you cope with the vagaries of life, monetary uncertainty after your death or a loved one's, and the often complex legal ramifications of estate planning and wealth distribution to relatives. Life insurance would not be a complicated matter if you do your homework, plan ahead and talk to the right people. Talk to professionals working in the life insurance industry to understand things like the type of insurance needed, coverage required, and the best way to buy a good policy at a competitive price.
What Is Life Insurance and Why Would I Need It?
Roughly speaking, life insurance protects people - say, your minor children - who depend on your paycheck. Life insurance provides income to your loved ones if you die prematurely until they have sufficient income to replace yours. Some life insurance clauses allow you to plan for things like emergency funds as well as money for legal, medical and funeral expenses - a smart and economically proper move, especially if your family can't afford those often pricey end-of-life costs. Besides taking care of your loved ones' existential needs, a life insurance policy offers others benefits. You can use it as an investment vehicle, depending on the type of insurance you get – be it term life, whole life, universal life, variable universal life, and survivorship life. Through a life insurance policy, you also can make money by accumulating cash or selling your policy.
How Much Do I Need?
The answer to this question depends on many things, including how much money will be needed for burial, your loved ones' living expenses, late-stage medical expenses and a miscellany of factors that go from college tuition to kids' future income prospects. Use Bankrate.com's comprehensive Insurance Calculator to estimate how much life insurance you would need to buy. For example, based on the below questionnaire and hypothetical answers, you need to purchase an approximate amount of life insurance of $254,030.88.
- How much money will be needed for burial expenses and associated costs? $2,000
- For how many years into the future will your income need to be replaced? 10
- How much annual net income will your survivors need? $30,000
- Do you have any children who may go to college? Yes
- How many children do you have who may go to college? 1
- How much do you estimate is needed for future college expenses per child? $20,000
- What is your child's age? 15
- Are there any one-time expenses you wish to fund (wedding, new car, home improvement)? No
- How much in liquid or semi-liquid investments do you have available? $50,000
What Kind of Life Insurance Should I Buy?
The type of insurance you should buy depends on your situation, your projected financial needs, and the periods in time that the money would be needed. Insurance companies, especially actuaries who work for them, use statistical estimations on everything from morbidity and mortality rates to investment returns. They may, for example, take into account inflation rates and investment returns five, 10 or 15 years from now.
After determining your needs, talk to your insurance agent and go over the types of policies available and the one that best suits your situation. Life insurance policies run the whole existential gamut, from term life and permanent to whole life, variable life and universal life. The last three policies are specific types of permanent life insurance because they all can accumulate savings on a tax-deferred basis. This is why permanent life insurance is often called "cash-value insurance." Term life insurance covers you for a specified time frame, be it 10, 15 or 20 years. By contrast, permanent insurance remains in force as long as you keep paying the premiums.
How Do I Get the Best Policy at the Best Price?
Life insurance expert Richard Weber, of the California Institute of Finance at California Lutheran University in Thousand Oaks, recommends that consumers talk to their insurance agents to figure out the most effective way to get the best policy at the best price. Mr. Weber suggests that you, as a potential policyholder, figure out whether you really need life insurance, how much and for how long, what kind of policy suits your circumstances, and what insurance company to trust.
Besides reaching out to your insurance agent, try to shop around for premiums on term life insurance to get the lowest quote. Beyond the quoted premium price, make sure the insurance company is the best one for you, and check factors like financial stability, credit rating, registration and the latest annual report. Contact your state's Department of Finance Services and the Office of the Insurance Commissioner. The goal here is to make sure you're dealing with a reputable company that will still be around when you're no longer here and that will be able to provide benefits to your survivors.
Buying the best life insurance policy can help you have peace of mind – or, rather, have your soul rest in peace – when you're no longer alive. Key questions to consider when embarking on the life insurance bandwagon include the coverage amount needed, the types of insurance you can afford, and the best policy and premiums.