Sciencelovers - Choosing the right life insurance is like ordering coffee. There are so many options that it's hard to know what to get...
The survey by Life Happens and LIMRA for the annual Insurance Barometer Study explains that in fact, confusion about how much and what type of life insurance to buy is one of the main reasons many people end up choosing not to have life insurance.
But the current state of affairs especially the COVID-19 pandemic has served as a warning to many and has prompted some to buy life insurance for the first time.
If you're considering buying life insurance but are confused, here are some tips to help make things easier for you.
1. Assess Your Current Personal Financial Situation
You need a true picture of your personal financial health before you can figure out what type of life insurance is needed and how much.
Consider what you have available to support a family that depends on you financially. This includes emergency funds, retirement savings and life insurance coverage through employment.
Discuss what needs you have to cover with life insurance. Whether it's a mortgage to pay, kids to support, a small business to keep or an inheritance to leave behind.
2. Know How Much Protection You Need
Usually, people underestimate how much life insurance they need. They tend to think only about how much it will take to pay off their main debt.
However, it must be considered how much more is needed to help a spouse or pay bills, support children, pay college fees or cover other long-term needs.
One rule of thumb is to have a policy with a death benefit equivalent to 10 times the annual salary. But your own financial situation and goals may require that you have more or less than that.
Creating a financial planner can help you get a more precise picture.
3. Know the Difference Between Term Life Insurance and Permanent Life Insurance
Life insurance buyers often think about term life vs whole life insurance. A term life insurance policy will provide coverage for a specific period of time, usually 10, 15, 20, or 30 years.
This can be an affordable way to get cover until you reach certain financial goals. There are types of permanent life insurance that provide coverage for life, which is why they are more expensive than term life insurance.
It is also more expensive as it builds cash value. Cash can be used for many things, for example to cover an emergency, supplement retirement income, help pay for long-term care or even cover policy premiums.
Choose a term or permanent policy depending on your financial needs and goals.
4. Understand What Affects Life Insurance Rates
The two main factors that life insurance companies consider when determining the rate you pay for coverage are health and age.
The younger you are when you buy life insurance, the cheaper it tends to be. That's because it tends to be healthier when younger, and therefore less risky to insure.
The rate paid also depends on the type of policy you get and how much the death benefit is.
