Choosing a life insurance policy should be based on what is best for you, not the person selling you a policy. The various types of policies work differently, making it vital that you know your financial goals before sitting down and buying a life insurance policy.
Life insurance is a very important component of many financial portfolios across the country. If you have ever considered shopping around for life insurance, you have probably realized just how large and diverse the industry can be. Considering that the type of life insurance—if any—you will ultimately decide to purchase can impact your family decades down the line, it is important to be a savvy shopper who knows exactly what they are looking for. Do you know which is the best life insurance product for you?
Consider All Of The Options You Have Available
Though the life insurance industry can indeed be a bit overwhelming at times, the good news is that you have a lot of options to choose from. In fact, the life insurance industry is one that currently has more potential offerings than ever before, and because of this, it has become much easier to find a customized plan that is able to cater to your family’s specific needs. Because you have so many different options to choose from, it is a good idea to shop around and get quotes from multiple different agencies. You should always be a skeptical shopper who is willing to engage in the process itself.
If two policies that appear to offer equal coverage have dramatically different monthly premiums, ask yourself, why is that the case? Is one company sincerely better than the other? Is one company asking me to pay too much for something I can get for less elsewhere? No matter what the answers to the questions may be, by being an active consumer who is able to objectively engage in the purchasing process, you will be able to find the type of policy that is right for you. There isn’t one policy that is necessarily right for everybody—the policy that will be in you and your family’s best interests will depend on your specific needs and financial situation.
Not Every Company Charges The Same Price For The Same Coverage
A 20 year term life insurance policy is an extremely common product in the industry; however, not everyone charges the same price for it.
Think About The Specific Needs Of Your Family
If you have multiple dependents in your family—whether they are a spouse, children, or anyone else—then the event of your death is likely to impact each of them in different ways. Though asking such a question can sometimes be difficult, it is important to ask yourself: if I were to pass away tomorrow, would my family be financially secure?
For some people the answer would be yes, for other people, the answer would be no. If you are one of the millions of Americans who is currently financially unprepared in the status quo, you may want to consider investing in the security that life insurance can provide.
Many people wrongly consider life insurance to be a luxury investment. They assume that because it may not payoff for years down the line, it is not something that they absolutely need in the status quo. But if you are the primary—or even secondary—provider for your family, you may not want to leave them financially unsecure in the event of your untimely death. Life insurance is something that can help bridge the gap between what you may have
and what you may end up needing.
Once You Decide To Buy, Think About How Much You Will Need
While many people ultimately decide to purchase life insurance, they may not always know how much they ought to buy. When determining the correct coverage amount, you are faced with two unique risks: over-coverage and under-coverage.
Over-coverage occurs when an individual decides to purchase an amount of life insurance that exceeds what their family will need. While your family will certainly not be financially ‘hurt’ by getting more money than is necessary, it is likely true that the amount of excess premium you are paying in the meantime could have been more productive elsewhere.
Under-coverage occurs when an individual doesn’t buy life insurance when their family needs it, or if they do purchase life insurance, they have not purchased enough. The risks of under-coverage include forcing your family to have to pay for funeral and end-of-life medical expenses, financial insecurity, and the risks of a lost income.
Ultimately, there exists a sort of quantitative ‘sweet spot’ in which your family is neither over-covered nor under-covered. Factors that influence where such a ‘sweet spot’ may be include the individual’s life expectancy, lifestyle risks (such as smoking, obesity, etc.), type of policy preference, and long-term goals.
Compare And Contrast Permanent And Term Life Insurance
Even once you have decided to get life insurance, and even once you have decided the amount of coverage you are going to need for your family, there are still a few more decisions that you will need to make. Among the most important of these decisions is whether you want to get permanent or term life insurance. Both permanent (also known as whole) and term life insurance are associated with various different pros and cons, and the type of policy that is right for you is going to depend on your long-term financial goals and personal situation.
Permanent life insurance is something that stays with you for your entire life, and can accumulate accessible equity over time. The benefits of permanent life insurance are that you will not have to worry about your coverage ever running out, you will be accumulating a rather impressive ‘cash value’ that you can access even before you die, and the policy itself is treated as a financial asset that can potentially be sold later in life. The cost of permanent life insurance, naturally, is that you will end up having to pay notably higher monthly premiums. For some people, permanent life insurance is an option that offers them both financial security and growth over time and is well worth its costs. For others who simply want to provide their family with financial security in the event of their death, the cost of universal life insurance may be too much for them to endure.
Term life insurance is something that—as the name might imply—provides you with coverage for a specific term. Typically these terms last about 10, 15, or 20 years, but there are usually other options available depending on your specific circumstances. Though term life insurance does not accumulate any sort of cash value, the monthly premiums are much cheaper, and the equivalent of the cash value can often be earned by investing the money you save elsewhere (stocks, real estate, etc.).
Variable life policies are a distinctive type of permanent life insurance that are connected to a specific earnings vehicle. With these policies, the policyholder accumulates a cash value that can be invested in a number of different options offered by the insurance company. These policies are frequently compared to mutual funds, and can earn a noticeably greater return if properly managed. If you are a well-informed investor who wants to have a greater sense of self-determination, then a variable policy may be right for you.
Continue Educating Yourself On Changes In The Industry
Though a trustworthy financial adviser can be an incredible asset when determining your financial future, ultimately, the fate of your finances is something that rests in your own hands. When it comes to your financial well-being, there is no such thing as being overeducated or too informed. The life insurance industry is one that is dynamic, complex, and constantly changing over time. Though life insurance is generally considered to be a stable and secure investment, the exact quality and future of your policy will depend on the actions of the government, the market, and numerous other factors.
Generally, you are going to want to purchase a policy that offers a high degree of flexibility. Because the industry is changing over time, you are going to want to have something that can adapt to these changes and not force you to be ‘locked in’ to a financially undesirable situation as you are aging. Think about your unique financial goals, the opportunity costs of your investment, and the gaps (or surpluses) that will result from purchasing a specific policy. Even though you may not be able to perfectly forecast the future, by educating yourself and understanding both the benefits and consequences of purchasing a life insurance policy, you can orient yourself to be moving in the right direction.
Be Willing To Ask A Lot Of Questions
A good financial advisor is one who is willing to be open, transparent, and able to honestly answer any questions you may have along the way. Naturally, it is your money that will be risked or benefited over time, and you have the right to be skeptical and demanding of information. These are all just a few of the valid questions you have every right to ask your financial advisor to answer.
- How much cash value will this policy accumulate over time?
- Is this term life insurance policy something that could eventually be converted to permanent life insurance?
- Does the level of benefits increase or decrease over time?
- Why should I choose your company over numerous other alternatives?
- Where do you believe I may be over-covered? Where do you believe I may be under-covered? Why do you believe this policy is the best policy for me?
- What are the opportunity costs of investing in life insurance?
- How flexible is this policy? What would happen if I change my mind over time?
Life insurance is generally considered to be an important component of any well-rounded personal financial portfolio. However, deciding whether or not to get life insurance is just one component of a lengthy decision-making process. If you decide to purchase life insurance, you will also have to decide on the amount you will want to get, the kind of policy that you will want to get, and how to integrate the policy into your long-term financial plan.