Life may be like a box of chocolates. But buying life insurance is more like ordering coffee at Starbucks. There are so many options that it’s hard to know what to get. “It can be extremely confusing at times.
In fact, confusion over how much and what type of life insurance to buy is one of the top reasons people give for not having life insurance. But the COVID-19 pandemic has been a wake-up call for many of us and has prompted some to buy life insurance.
If you’re considering buying life insurance but are confused, these 10 tips will help.
Tip No. 1: Assess Your Current Financial Situation
You need a true picture of your financial health before you can figure out what type of life insurance you need and how much.
Consider what you have in place to support loved ones who depend on you financially. This would include an emergency fund, retirement savings and any life insurance cover through work. You might find that you’re not as prepared for the unexpected as you thought.
Working with a financial advisor to discuss what needs you should cover with life insurance—whether it’s a mortgage that will need to be paid, children who will need to be supported, a small business to maintain or a legacy you want to leave.
Tip No. 2: Know How Much Cover You Need
Typically, people underestimate how much life insurance they need. They tend to think only about how much would be needed to pay off their major debt, such as a mortgage. However, they should consider how much more would be needed to help a spouse or partner pay bills, support children, pay for college tuition or cover any other long-term needs.
One rule of thumb is to have a policy with a death benefit equal to at least 10 times your annual salary. But your own situation and financial goals might require that you have more—or less—than that amount. A financial planner can help you come up with a more-precise figure.
Tip No. 3: Know the Difference Between Term Life and Whole of Life Insurance
Life insurance buyers often think about term life vs. whole life insurance. A term life policy will provide cover for a certain period of time—typically 10, 15, 20,30 up to 50 years. It can be an affordable way to get cover until you reach a certain financial milestone, such as paying off your mortgage or putting your kids through college.
There are other types of life insurance like whole of life. A whole of life insurance provides lifelong cover, which is why it’s more expensive than term life insurance. Whether you choose a term or whole of life depends on your needs and financial goals.
Tip No. 4: Understand What Affects Your Life Insurance Price
The mail factors life insurance companies consider when determining the price you pay for cover are health.age and smoking status. The younger you are when you buy life insurance, the cheaper it tends to be,That’s because you tend to be healthier when you’re younger, and therefore less risky to insure.
The price you pay also depends on the type of policy you get and how large the death benefit is. If you get a term life insurance policy, the length of the term you choose also will affect your premium.
Tip No. 5: Shop Around for the Best Price
Many insurers make it easy to get quotes online. Because rates can vary, you should get quotes from several companies to help you decide which company to apply to for cover. You also could work with an independent insurance broker who works with several insurance companies and can help you find the best cover at the best price.
Tip No. 6: Don’t Just Focus on Premium
The price you pay for life insurance is important because you want to ensure the premium fits in your budget. After all, a policy won’t do you any good if you can’t afford to pay the premiums. However, price shouldn’t be the only factor you consider. Extra benefits flexibility for your needs should also be considered.
Tip No. 7: Prepare to Answer Questions When Applying
The quote you get from an insurer typically is just an estimate of what your premium will be. To get a policy, you’ll have to fill out an application. You’ll be asked questions about your age, weight, personal medical history and mental health, family medical history and tobacco use.
Tip No. 8: Be Truthful on the Application
Be careful not to omit or obscure any information on your life insurance application. It’s very important to be truthful on your application as if you aren’t it could cause non disclosure at a claim stage and nothing will be paid to your dependents. Most applications have very little extra needs. However you also might be required to take a medical exam, which includes blood and urine tests.
Tip No. 9: The Process Doesn’t Have to Be Painful
While there is lots of questions at the application stage this is to ensure at claim stage there isn’t any problem. By going through it now when a claim is made the money is paid out fast and without delay.
Tip No. 10: Lock in Temporary Cover
If the underwriting process will take a few weeks or more for the policy you’re buying, you can usually avail of temporary cover. This gives you cover, and peace of mind, while you wait for the application to be processed. Ask your life insurance broker about this option.