No one wants to think about dying. Of course, you’ll quickly rub off such thoughts in your mind if you find yourself down that road. But if you have people depending on you for financial needs, a life insurance policy is your best friend. With one, you can plan for any worst-case scenario. With life insurance, your loved ones will have enough to keep them going after you’re gone. And now you’re thinking, “How can I choose the best insurance policy for my family?” The answer depends on several factors: your needs, level of investment discipline, how much you can afford – the list is endless! And because sharing is caring, this guide will teach you the basics of how to choose a life insurance policy.
1. Assess Your Budget
A life insurance policy is a significant personal investment. This is an area you want to approach carefully by making a well-informed decision. But if you’re stuck and cannot make the right decision, a Policy Advisor will come in handy. These experts understand the differences between permanent life insurance and time life insurance. They will also explain which type of insurance suits your budget needs. For instance, a term insurance policy can be expensive to maintain. On the other hand, a permanent policy maintains the same fixed premiums throughout the policy, making it ideal for most people.
2. Go for a Fixed Price
With life insurance, you’re presented with two options: guaranteed or reviewable premiums. So, what’s the best one to pick? If you’re on a budget, a reviewable premium is cheaper to purchase. However, your issuer will periodically review it and can hike the payments down the road. This is why insurance experts recommend choosing guaranteed premiums. With this plan, you make fixed monthly payments. This means you’ll know what you’re paying for over the life of the policy. And if that’s not enough, your issuer will keep you updated if they decide to change anything down the road.
3. Combination vs. Convertible Life Insurance
Today, a combination life insurance policy is more sought after than its counterpart. It offers you an option to have a payout in different circumstances, other than death. Additionally, it combines with coverages such as long-term care insurance. According to a study conducted in 2019 by LIMRA and Life Happens, one in every five Americans said they would prefer a combination package. So, does this mean convertible life insurance is not favorable? No. This policy allows you to start with a term life insurance policy. Over time, you can convert it to a whole life policy and retain it at the end of the term.
4. Choose a Favorable Premium Amount
Even though the insured coverage amount is high, you don’t want to ignore the monthly premium payments. Remember: these payments keep your insurance running. That said, try and choose an amount you can comfortably pay. The amount set should be convenient and affordable and not an amount that impacts your other financial needs. To break it down further, start by calculating your monthly expenses. Next, check how much money you’re left with after the deductions. Once you have this figure, ONLY then can you choose a premium amount. Remember, you risk lapsing your life insurance if you fail to pay during the tenure.
5. Consider the ‘Loading’ By Insurer
Most insurance policies make their policy seekers undergo medical tests. Once this happens, they will revise the premium. Of course, many customers don’t accept the revised premiums. Instead, they switch to another life insurance provider. This revision in premium happens through the ‘loading’ process. In other words, it’s asking for an additional premium on medical grounds. Now, what does this mean for you as a policy seeker? If you accept the loading, you are assured the insurer has approved the medical grounds, i.e., the claims process will not be affected because of it.
6. Determine the Need
People buy life insurance for different reasons. To rephrase this, how much insurance you need depends on why you are purchasing it. If you want to cover your family’s financial needs should you die, you may need to review several factors to understand how much you need. Think of it this way: how much would your family need to sustain them for a year to replace your lost income? Once you answer this question, you understand how much you need to pay for life insurance.
Hopefully, these tips will help you choose the right life insurance. Remember, many factors are in play when choosing the right kind of life insurance. In most cases, age and your financial situation will be significant determinants. In addition to this, you need to assess how much you can afford. Finally, don’t forget to review your life insurance choice every few years if your family situation changes.