8 Smart Steps to Buy Life Insurance
- Life Insurance
- Check to see if you are eligible for life insurance.
- Calculate the amount of life insurance you require.
- Set financial goals for life insurance.
- Find the right type of life insurance to meet your financial needs.
- Determine if there are any “riders” that you should add to your policy.
- Compare life insurance policies to find the best deal.
- Decide whether you want to pay annual premiums in one lump sum or in equal installments.
- Inform your beneficiaries about your life insurance policy.
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Although life insurance is a valuable tool in financial planning, it can be difficult to find the right coverage for you. Don’t worry. These steps will allow you to focus on the important aspects of purchasing a policy that suits your needs.
Check to see if you are eligible for life insurance.
Although life insurance can be useful, it is not essential for all. If any of these conditions are applicable to you, consider purchasing a policy.
- Your financial support is crucial for someone who depends on you and will likely continue to need your financial resources even after your death.
- Your estate will not have enough liquid assets (cash investments, property or other sellable items) in order to pay its taxes and to repay any debts, which could lead to a reduction in the inheritance you want to leave.
- You want to pay for funeral and burial costs at least so your assets can be passed on to your heirs.
- It is possible that you don’t require life insurance. Life insurance may be a viable option to leave a legacy of support for a charity you believe in.
Calculate the amount of life insurance you require.
Many people find this part of the process overwhelming. The following three questions are crucial:
How will your heirs or survivors be able to access financial resources after your death? Consider these three main categories of resources:
- Social security and other retirement-related survivors benefits
- Group life insurance (e.g. A policy that you might have from your employer; and
Other assets and financial resources
When will these resources be available? If there are dependent children, for example, the spouse who survives will be eligible for social security survivor benefit benefits. Social security might not be available to your spouse if you are 60 or older.
Determine the financial needs of your survivor after your death. You might consider focusing on three types of financial needs: income, debts and final expenses.
Next, subtract the financial resources of your survivors from their financial needs in order to determine the amount of coverage you should buy. Many people are not insured because they don’t follow these steps properly or choose a shortcut (such a buying multiple of their annual income). See: How much life insurance do I need? for more information on determining the correct amount of life insurance.
Set financial goals for life insurance.
The main reason you purchase life insurance is to ensure that you have financial resources to support your loved ones. The death benefit is the financial payout that you receive after your death. Premiums paid to the insurance company are used to pay premiums. This money is used by many people to cover their last arrangements, pay for living expenses, or support their favorite causes. You can also use life insurance to build savings and provide income for your family after your death.
Find the right type of life insurance to meet your financial needs.
There are many types of life insurance. You might have heard of universal life, whole-life, or term life. There are fundamental differences between each of these types. These differences may be beneficial to you.
Term life policies provide a death benefit that is paid for a certain time period of your life. This could be five, ten or fifteen years. Most people prefer term life insurance coverage. However, premiums for this type of coverage are typically lower. Premiums can be more expensive if the term is longer. A term policy is a good choice if you are looking for insurance coverage that will last a certain amount of time or have a tight budget.
What if you wish to buy insurance coverage that will last for many decades? Perhaps you would like to save some premiums. In either case, a universal or whole policy could be an option. Basic whole-life insurance has a fixed premium. It promises a minimum return on your investment, which increases the policy’s cash worth. Universal life insurance policies may have the ability to adjust premium payments or increase the death benefit.
Determine if there are any “riders” that you should add to your policy.
The type of life insurance policy you choose will determine the primary benefits. You can customize your coverage by adding riders to your life insurance policy. These optional additions provide additional coverage or benefits that you won’t get with a standard policy. Some riders can increase your premiums while others may be free.
You might want to look into two riders: guaranteed insurability and waiver of premium. You may find that some policies include one or both of these riders with your basic contract. If not, it’s a good idea for you to add them. If you become disabled, the waiver of the premium will pay the premium for your life insurance policy. You can add to the death benefit with guaranteed insurability without proving that you are in good health.
Compare life insurance policies to find the best deal.
There are many ways you can save money on life insurance. However, they don’t necessarily mean that you will pay a lower premium right away. Life insurance is very competitive and quotes can differ greatly between companies. It is important that you find the right coverage for your needs and budget. If you prefer to work directly with an agent to help you understand your financial situation, and to give you options in clear terms.
Decide whether you want to pay annual premiums in one lump sum or in equal installments.
There are two options: pay an annual lump sum, or spread the cost over smaller, more frequent installments. As there could be an additional cost for installments, it may be cheaper to pay in one lump sum each year. You can decide what works best for your needs.