You want to buy life insurance. Here are 8 tips that you should think before you buy it.
- 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).
- 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).
- 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.
- 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.
- 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.
- 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.
- 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.
- Will the beneficiary of the policy have to pay tax on the death benefit? – Beneficiaries usually do not pay taxes on death benefits.