For most people, in terms of popularity, the idea of purchasing life insurance ranks somewhere around visiting the DMV or having a root canal. Simply put: it’s not high on many people’s to-do list. But just like the aforementioned scenarios, the purchasing of life insurance is a necessary part of many a person’s life. And the process can seem even more daunting for first-timers.
Indeed, quite a few folks forgo purchasing life insurance because they simply don’t know where to begin. This is a mistake on a couple of fronts. First, there are few better ways to provide for loved ones in case of a fatality than through life insurance. Second, purchasing life insurance just doesn’t have to be that difficult.
With that in mind, here are some tips to help smooth out the process for first-time buyers.
Weigh the need for life insurance
Indeed many people will end up purchasing life insurance at some point in their lives. But this should only be done if the potential policy holder has dependents in his or her life. Life insurance can provide a wide safety net. It can help fund retirements or pay for college or even cover mortgages. Those who are unmarried and without children will likely not need life insurance until later in life.
That said, it never helps to plan for the future. In fact, many younger people often opt for a life insurance starter package, as it s significantly cheaper the younger a person is.
Know the coverage amount
The payout immediate family members or other relatives receive in event of a death is referred to as a “death benefit.” When shopping for life insurance it is necessary to calculate just how much this death benefit should be. There are online calculators that can perform this function, but there are far more simple calculations that can be made off the top of a person’s head.
Those thinking about purchasing life insurance can simply multiply their annual salary by 8 in order to achieve an appropriate benefit pay out. Those who want a more detailed calculation should consider how much monthly expenses will be for family members after the death.
Choose the appropriate policy
The days of door-to-door insurance salesman hocking one-size-fits-all policies is long gone. In the modern era, there are many available policies, but only four basic types.
Term life insurance – this type of insurance provides coverage for a specific number of years. Generally speaking, this is the least expensive of the four types of coverage and its payouts can be applied towards mortgages and outstanding debt.
Whole life – as the name suggests, protects the policyholder throughout the duration of their lifetime. Another stark difference between term and whole-life insurance is that the latter accumulates monetary value over time. This value can then be converted to cash via a policy loan that can be put toward an education fund or retirement income. Of course taking out a policy loan will result in a reduction of the overall death benefit.
Universal life – is a more flexible option than whole life because it allows the policyholder to increase or decrease their coverage as well as the frequency of premium payments.
Variable universal life – is a type of coverage that is not only flexible, but that allows for dollar investment as well. Policyholders of this type of coverage can allot their premium dollars to various investments, which can yield results over time. Also, the death benefit paid out through a variable universal life policy is tax free.
By keeping these simple tips in mind, those looking to purchase life insurance for the first time should be able to differentiate between the type of policy they truly need and what is merely superfluous.
Jeff Mathis is a personal insurance expert. His aim is to guide you through the minefield and ensure you secure the best deal. Visit InsuranceTown.com for more information.