8 Tips before you buy life insurance

You want to buy life insurance. Here are 8 tips that you should think before you buy it.

8 Tips before you buy life insurance
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  1. What types exist? – Term and permanent. Term insurance commonly lasts for a period of 10-30 years, decided by you. Permanent lasts until death and also has a cash value that piles up while you are still alive (and disappears if the death benefit is paid out).
  2. Which type should I get? – Term is roughly much less expensive than permanent. 80-90% of people are better off with term life insurance. If you purchase life insurance (term) when your children are young, by the time the coverage completes (when they are in there late 20s or early 30s) they will not depend on your income any longer. Permanent is reserved more for special cases, including those who look after someone with special needs or if they wish to leave a wealth in excess of 2.5 million dollars (in this case the death benefit would pay for the estate taxes).
  3. How much coverage will I need if I buy life insurance? – The amount you need is determined by information such as your salary, number of dependants (people that lean on your income), current debts (mortgage) and future debts (college education for your kids?). You need to make sure all this is covered with room to spare. With all of these totaled up (using an online insurance calculator), the common rule of thumb is to add 25-30% more.
  4. Will I need a medical exam? – If you desire to buy life insurance by yourself, not part of an employer-offered group plan, this is important. If you are young or in good health, you likely won’t need a medical exam. The older you are the more coverage you want to have, the more likely you are to need one.
  5. How do I minimize my premium cost? – If you are a smoker or are overweight, your premiums will be expanded. Your rates can drop after being smoke-free for over a year. Since insurance companies utilise statistics such as BMI (body mass index) to calculate premium costs, losing weight will inevitably lead to lower premiums. Premiums often remain unchanging from the time that you initially buy life insurance.
  6. Does the death benefit ever diminish? – In almost cases, it will never decrease. One variation of variable life insurance has decreasing death benefits. If you are about to purchase life insurance, it is always good to ask such a question.
  7. How often do I pay my premium? – Premiums are commonly paid on an annual (and sometimes semi-annual) basis. Often these premiums are able to be paid online.
  8. Will the beneficiary of the policy have to pay tax on the death benefit? – Beneficiaries usually do not pay taxes on death benefits.

9 thoughts on “8 Tips before you buy life insurance

  1. Thank you for your 8 tips on life insurance. It is good to know that i will most likely not need a medical exam. I wonder if I got one anyway if it would lower the cost of my insurance?

    1. No, this part does not lower the cost of your insurance.
      Beside this, if you have health problem detected during a medical examination, the price could be higher / some companies require you to cure your health problem first before buying the insurance.

  2. These are some good things to think about when you are trying to get life insurance. I liked what you said about checking to make sure that death benefits don’t ever stop. That way you know your loved ones will be taken care of if something happens to you. It might be smart to have a professional help you.

  3. My husband and I don’t have life insurance and so we are thinking about getting it, especially since we are about to have our first child. However, I never knew that there were different types of life insurance. How can getting the term type benefit me more than permanent kind?

  4. It’s helpful to know that if you plan on buying life insurance not through your company, you’re going to need a medical exam. As you say, this will help determine what types of coverage you need and qualify for. However, since I have my own business, and I work from home, I’m wondering if this requirement is different? I appreciate the help.

  5. Thank you for this crash course on life insurance. It seems like there is so many details involved in obtaining insurance, but your article presents them in a simple and comprehensive way. I find it very interesting that insurance companies utilise your BMI to calculate premium costs. I guess the reduced price is one good thing about being overweight.

  6. Thank you for the help. I am about to get life insurance for the first time. I had not realized how much less term insurance was. Do you think that provides sufficient coverage?

  7. This is some great information, and I appreciate your point that a medical exam most likely won’t be needed if you’re in good health. My husband and I have decided that it’s time for us to get life insurance so our children would be covered if something were to happen. We’re both young and healthy, so it’s good to know that we likely won’t need a medical examination. Thanks for the great post!

  8. My husband and I are thinking about getting life insurance. Finding out how much coverage you need by calculating your salary and number of dependents is a great idea. That way you know you are covered in case of an emergency.

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