To protect your dependents’ lives, life insurance is an important purchase. Life insurance can seem intimidating. You might be overwhelmed by the options available and hesitate to purchase a policy. Avoiding such a serious discussion can prove costly and harmful in the long-term, especially if something unexpected happens.
Keep in mind that a policy that fits for someone else may not work for you, so just like when you purchase auto insurance or homeowners insurance, discussing your unique financial situation with an insurance professional is crucial. Here are eight questions you should ask your agent if you are looking for life insurance.
What type of life insurance policy should you get?
It is essential to first understand the basic types of life insurance coverage. There are two main forms of life insurance that you can purchase–term insurance and permanent insurance.
A term policy covers you for a specific number of years. It will not provide any death benefits beyond the terms. Term policies are available for purchase from 1 to 30 years. They can usually be bought with a specific goal in mind such as financially supporting a child, or paying a mortgage. Depending on which type of policy you choose, the death benefit of a policy can increase or decrease over the term.
Permanent life insurance, on the other hand is a policy that provides a death benefit in the event of the insured’s death. Permanent insurance is more complex than term insurance, with several variations available, including whole, universal and variable universal. Traditional policies come with a pre-paid premium and death benefit, but universal and variable policies can fluctuate according to the market.
What amount of life insurance do you need?
One of the most common life insurance questions is “how much life insurance will I need?” The answer involves two major factors: how much it will take to pay off your debts, including your mortgage, and how much your dependents will need to maintain the same lifestyle after you are gone. Although all insurance companies consider these factors, different insurance providers may use different formulas to determine your exact insurance needs.
It is important to understand your life insurance needs, especially for families that have unusual debts such as high medical bills. These may not be included in a basic-needs formula. Insurance advisors recommend that you evaluate all of your debts and talk through your financial goals in order to determine the best amount for your needs. You can make an informed decision about the type of policy you want to buy once you have made sure that your agent has taken into account all your financial goals.
What is the cost of a life insurance policy?
The cost of your life insurance policy will depend on a variety of important factors. Your age, gender, lifestyle and the type of insurance you require will be required by your life insurance agent.
Life insurance companies use these factors to assess your risk level. Your risk level can be affected by your lifestyle, hobbies, driving record, and smoking habits. Your life insurance premiums will likely be higher if you have a higher risk profile.
It is important to know how much coverage your policy will provide. However, it is also important to understand what coverage you can afford. Though the average cost of life insurance ranges from $40 to $55 per month, your premium may be much different depending on your current risk level and the type of policy you choose. Permanent insurance policies are generally more expensive than term insurance policies.
Is the policy designed to provide living benefits?
It is common to believe that life insurance provides only death benefits. Surprised to find out that life insurance policies often provide living benefits, such as borrowing against the policy’s cash value.
The company that offers living benefits varies and they may be available while the insured is still alive. Some life insurance policies provide common living benefits such as:
- Early payment: This benefit is for an insured who has been diagnosed as having a terminal illness. It helps to cover medical expenses and care. The percentage of the benefit will depend on the policy and the company.
- Long-term Care: The long-term benefit allows the insured to pay for their care if they become unable to do so.
- Short-term Care: This benefit can be used to cover short-term costs if the insured is temporarily incapacitated or injured.
Important to remember that while some of these benefits are included in life insurance policies, others can be purchased at an additional cost. If you are interested, speak to an insurance professional.
What life insurance benefits can you be sure of?
It is crucial to read your policy carefully before purchasing life insurance. This will help you understand the benefits that are available in the event of your death. Life insurance agents may provide a document referred to as a “life insurance illustration” when you get a quote that details the expected value of your policy, depending on how long the policy is active.
Variable policies can lead to significant fluctuations in projected values. You should focus your attention on the “guaranteed figures” and ensure you are comfortable with these values when reviewing your illustration.
What are my returns expected?
This question is not applicable to term life insurance policies. You should expect to wait several years for positive returns on a permanent policy if you are considering one.
Permanent life insurance policies can be considered long-term investments. They are usually purchased to provide a safety net in case of unexpected life events and not for financial growth. The first few years of the policy are paid directly to the premium. It may take some time for the policy to build a cash value and generate a positive return.
What happens if my health is changing?
A medical examination is required unless you are purchasing a guaranteed-issue policy, or life insurance through your employer. Your health may change throughout your policy. You may be eligible to have your premium reduced if you undergo another medical exam and underwriting.
Asking your agent about what happens if you become disabled or have your health declining is a good idea for term life insurance policyholders. If your health deteriorates during your policy term, and you have an ongoing requirement for life insurance coverage, it may be worth buying a convertible policy.
Even if you don’t purchase a disability rider, some life insurance policies offer benefits to policyholders who are disabled. In the event of disability, this benefit could include a waiver of premiums. Every company will define “disabled”, so it is important to talk with your agent about what additional riders you should purchase.
What happens if I require more coverage?
As you get older, your life insurance requirements may change. Your life insurance policy terms and conditions may need to be changed. The idea behind a term policy is that you should have no insurance needs after the term ends. You can convert your term policy to permanent life insurance if you still have a need for insurance. However, the conversion premiums can get more expensive as you age.
When you’re young and healthy, policies are usually the most affordable. While you might not have children or a mortgage when you buy insurance, you should consider future financial goals and changes in your life when you decide what policy type is best for you. The right policy will save you time and money in the future.
