Buying Life Insurance – Tips for First Timers
Are you at a loss for buying life insurance?
If so, you aren’t alone. Almost 40% of people in the United States don’t have life insurance.
Although it has its obvious benefits, choosing the right insurance can be a daunting prospect. There are a lot of options and jargon to decipher. Many people are so overwhelmed that they give up entirely. But it doesn’t have to be this way.
Keep reading for a few tips that every first-timer should keep in mind.
Understand What Life Insurance is For
Some permanent life insurance policies do have cash-earning potential. But life insurance is not meant to be an investment vehicle. Your aim when buying life insurance policies should be to protect your family in the event of your death. You don’t want them coming under financial struggle trying to pay for your funeral, or not being able to cope with any debts you leave behind.
Research and Understand the Basic Policy Types
Insurance policies are either term based or permanent. Before you can work out which is better for you, you need to know how they differ.
Term Life Policies
These policies will give you basic insurance for a set period of time. Terms of 20 or 30 years are common.
If you die within that period of time, then the life policy will pay out to your named beneficiaries. But, if you outlive your policy then it will expire. You’ll need to choose a replacement, or you’ll have no cover anymore.
Permanent life policies
Permanent life policies will cover you throughout your entire life. There are usually higher premiums to pay on these policies. But, these premiums get split into death benefits and investment components. You’ll often see the investment component referred to as a cash value.
Set Out Your Life Insurance Goals First
No matter what you choose, be it term or permanent insurance, it’s a long-term commitment. Before taking anything out, think about where you see yourself in 20 or 30 years. What will be most important to you at that time?
For example, in the long-term would you prefer to pay lower premiums. This would allow you to invest elsewhere in something like a 401(k) program or a college fund. Or, is the investment option that comes with permanent cover important to you?
Try to determine where you think you want your finances to be further down the line. We know you can’t predict the future! But having an idea of your financial goals before will help determine the right policy for you.
Determine Your Coverage Needs
As part of your plan to determine the right policy for you, work out your coverage needs. The big question you should ask is how much your family will need in the event of your death.
Start by working out your expenses. It’s likely you’ll have mortgage payments to make, college funds you’re putting into. Make a list of your long-term expenses and their rough total. Also, try to factor in a contingency amount for any long-term expenses you don’t have yet but might in the future.
There are online coverage amount calculators you can use but they’ll only give you an idea. You’re covering a long period of time, remember. They do allow you to run different scenarios and build an idea of your likely future outgoings.
When used as a guide, calculators can help you determine what options suit you best. And how best you can balance coverage with cost.
The Golden Rule: Only Buy What You Can Afford
This might sound like an obvious tip but it’s worth mentioning. Just like with auto insurance, there are riders and additional coverage options you can sign up for. So many people get swept up with the pressure and believing they need every little benefit in a policy, no matter the extra cost. While others forgo purchasing it because they don’t think they can afford it. Or won’t be able to in the future.
In both cases, start with what you can afford. Find a policy that covers what you need at a basic level and add to it as time goes on.
Life insurance is more affordable than you might think. It’s not something you need to get yourself into debt over either. So long as you stick to this golden rule.
Consider Who Your Beneficiaries Are
Your life insurance beneficiaries are who you name to receive funds in the event you die. They can be people, trusts, organizations, charities or even your local church. And, you’re not limited to only one beneficiary.
Think through and consider in full who you want your beneficiaries to be. If any funds are going to a minor, they will need to be held in a trust.
It’s also a good idea to have a will drawn up at the same time. In the event of your death, having your beneficiaries stated in this legal document will be a boon. It’ll make sure your funds go to the right people and your wishes are respected.
Choose a Respectable Insurance Company
When looking at insurance companies and quotes you need to bear one thing in mind… the insurance company should outlive you! Otherwise, you’re throwing money down the drain.
So, before buying you want to carry out a background check of the company you’re interested in. It’s important you know you can trust your chosen insurer to hold up their end before you go parting with any of your personal information.
Check the financial stability of your chosen companies and take a look at the reviews. Reviews are a hand way to help you get a feel for the different insurers and what their current customers think. It will become clear if they have a good or bad reputation. You’ll also get a good vibe for how they treat their customers and their ethics as a company.
You’ll want to look into the performance of the company’s stocks. As long as they’re a public limited company, you can check this. Also, compare the ratio of claims they receive against the claims they pay out on. You don’t want your family stuck with a policy they can’t claim on.
Most customer-friendly companies will follow a Good Faith and Fair Dealing policy. They aren’t going to deny a claim without reason and they’ll be upfront about the policy clauses in their terms and conditions. If the insurer you’re looking at doesn’t fit this mold, then it’s better to look elsewhere than get burned.
Compare Like to Like
When you’re gathering price quotes, make sure you’re comparing similar policies. If you end up comparing term life insurance to permanent policies you’ll end up with confusing price differences. This is because term policies often have lower premiums.
So, you’ll see inconsistent and huge gaps in your quotes if you compare a $100,000 term policy with a $100,000 permanent one. Also, it’s a good idea to look at what payment plan options there are depending on your circumstances. Don’t stick with looking at monthly payments if it’s not convenient.
Get Professional Assistance
While insurance may seem confusing to you, an independent agent will have no such trouble. They spend all day every day finding the perfect insurance for people and can put their experience to work for you.
They will be able to look at your situation and find the best policies for you. They will also be able to suggest policy riders and explain everything in layman’s terms. And they will do all this without pushing you towards a specific policy.
The “Free Look” Period
Life insurance policies have a “free look” period that allows you to cancel with a full refund. The length of the period differs between insurers but normally lasts for 10 days. Be sure to clarify this before you sign.
Take this time to have another look at your policy. Make sure that the policy is right for you. Review your policy, request clarification on any confusing sections.
If you feel like you made a rash decision cancel the contract. Try and figure out what led you to make the mistake, and work to avoid it when looking for your new policy.
Check the Terms and Conditions
They say you should always read the fine print, and life insurance is no exception.
Make sure you are getting what you think you are paying for by reading the terms and conditions in full. Important caveats can often hide here, and you want to find any ambiguity in the language.
When tested, most ambiguities are resolved in favor of the claimant. But is that a risk you want to take? Try to clear up any ambiguities before you sign, or speak to a lawyer so you know what to expect.
After all, you don’t want your family to encounter any issues at the point of claim.
Buying Life Insurance
So there you have it. Following these tips will make buying life insurance will be a breeze, even if you are a first timer!
Do your research, shop around and don’t rush in to anything. Even once you have committed, remember that you can change your mind during the “free look” period.
If you are in the market for Life Insurance, compare providers at PolicyPilot. We comparison shop a selection of trusted insurers to give you a personalized list of plans that that best suit your situation.