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Life insurance is a must-have financial product for most people. Giving you peace of mind that your loved ones will be financially secure in the future, the right life insurance can give you the safety net you need.
However, purchasing life insurance isn’t always straightforward. With so many different types of cover available, it’s important to make sure you’ve got a policy that’s right for your family. Before you extend your cover or take out a new policy, take a look at these top seven things to consider when buying life insurance.
1. How Long Do You Want Your Cover to Last?
Not all life insurance policies last forever. When taking out life cover, you’ll need to decide whether you need term life insurance or whole of life cover. Term life insurance lasts for a fixed amount of time, usually 25 years.
If you outlive the policy, it won’t payout at all. In contrast, the whole of life cover extends until your death and could be an ideal way to ensure your loved ones have an inheritance.
Of course, the cost of the whole of life insurance is higher than the fixed-term life cover. As death is inevitable for everyone, the guaranteed payout associated with whole life cover means you’ll pay more in premiums.
If you want to ensure your family has a safety net while major bills still need to be paid, such as your mortgage, fixed term life insurance could be a way to provide this safety net while minimizing your monthly premiums.
2. How Many covers Do You Need?
One of the major issues when taking out life insurance is how much coverage the policy offers. With some policies paying out a few thousand dollars and others paying out millions, there are options to suit all needs.
If you’re unsure how much life insurance you want to take out, start thinking about what you want the cover for. If you would like your partner to be able to pay off the remainder of a mortgage, for example, the policy value will need to exceed the amount owed. In addition to this, there may be other costs you would like to have covered if your life insurance needs to be used, such as school or college fees for children and dependents.
Many people want a life insurance policy to provide a nest egg for their family when they’re no longer around to provide for them financially. If so, you’ll need to add this to other costs you want your policy to cover in order to determine how much life insurance you really need.
Remember – the more your life insurance policy is worth, the more it will cost in premiums.
3. Should the Policy Value Remain the Same?
Choosing the right life insurance policy also means deciding between decreasing term or level term insurance. With level term insurance, the value of the policy remains the same until it expires. If you take out a policy worth $100,000, for example, it will be worth the same amount until it’s either used or, in the case of fixed-term insurance, it expires.
With decreasing term life insurance, the value of the policy changes over time. It may be worth $100,000 for the first 15 years, for example, before decreasing in value to $50,000 for the remainder of the policy.
Decreasing term life insurance is designed to reflect the changing financial burdens we experience throughout our lives. Between the ages of 30-55, for example, you may have a large mortgage to pay off or kids to put through college. After this time, your financial obligations and expenditure may reduce.
A decreasing term insurance policy enables your loved ones to receive a larger payout if they need to cash in the policy within a specific timeframe. This means the value of your policy will change, ideally in accordance with your family’s financial needs.
As decreasing term life insurance cover is cheaper than level term insurance, it can be a savvy way to ensure your family’s needs are met. However, you’ll need to calculate the future financial needs of your loved ones carefully to ensure they have enough financial support when they need it.
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4. What Does the Policy Cover?
A life insurance policy is designed to pay out upon the death of the policyholder. However, most insurance policies have clauses that specifically state in which circumstances the policy is valid. Don’t simply assume that if you die within the term of the policy, your loved ones will receive the funds.
Often, life insurance policies are written to exclude certain causes of death. If you partake in high-octane sports, such as paragliding or freediving, a standard life insurance policy probably won’t payout if you’re killed while pursuing your hobby.
However, it isn’t just your lifestyle that you need to consider when choosing a life insurance cover. Your medical history can also have an impact on what type of cover a life insurance provider will offer you. If you have previously been diagnosed with a heart condition, for example, death caused by a related condition may be excluded from your policy.
If you have current or previous health issues, there’s no need to panic as you can still obtain the insurance you need. Life insurance is available for cancer patients, for example, even if you’re still receiving treatment for your condition. However, it is essential that you read the small print and terms and conditions of any policies before deciding which one is right for you.
5. Who Are Will Your Beneficiaries?
When you take out a life insurance policy, you’ll be asked to appoint one or more beneficiaries. These are the people who will receive the funds in the event of your death. You are free to choose whoever you like as your beneficiaries, although most people select family members, dependents, or close friends.
It’s important to consider whether you would like your beneficiaries to have unrestricted access to the funds or whether they should be placed in trust for them. If you appoint a child as a beneficiary, for example, they may be a minor when they inherit, in which case, someone will need to manage the funds on their behalf.
Similarly, you may not want your beneficiary to inherit a large lump sum when they are in their late teens or early twenties. Instead, you may want to make provisions so that the release of funds is staggered or so that they are held in trust for a specific period of time.
6. Should You Buy a Joint Life Insurance Policy?
If you’re married or in a long-term relationship, you may want to consider purchasing a joint life insurance policy. This can be a cheaper option than taking out two single policies, so it can be a good choice if you’re looking for ways to reduce the cost of your premiums.
Bear in mind, however, that a joint life insurance policy will only pay out once, usually upon the death of the first policyholder to die. In contrast, if you and your spouse have two separate policies, there will be two payouts in the future, assuming you both die within the relevant term of the respective policy.
7. How Much Do You Want to Pay?
The cost of life insurance can vary dramatically, depending on your personal circumstances, life history, and the type of cover you choose. Most life insurance providers enable you to pay for your premiums on a monthly or annual basis so that you can spread the cost of your cover.
Although you may want to get the most comprehensive type of life cover, it’s vital you can maintain your premium payments. Missed payments may mean that your policy is void, so it’s important to choose a level of cover that you can maintain comfortably for as long as the policy is valid.
Finding the Right Life Insurance Policy
No-one wants to spend time thinking about their own demise, but obtaining life insurance can give you peace of mind about the future. However, it’s important to get the right sort of policy for your needs. Knowing that your loved ones will have the financial and practical support they need when you’re not around can be a comforting and reassurance thought, providing you’ve considered all eventualities.
If you’re unsure exactly what type of life insurance cover is best for you, it can be helpful to get independent advice. By working with an experienced adviser, you can determine how much life insurance you’re likely to need and which types of cover are most suited to your lifestyle.
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In addition to this, comparing life insurance policies is a great way to weigh up your options. Getting instant life insurance quotes takes seconds and can help you to determine how much cover you can obtain without exceeding your budget. No matter what type of cover you choose, having the right life insurance policy gives you the opportunity to secure your family’s financial future.
- 1 1. How Long Do You Want Your Cover to Last?
- 2 2. How Many covers Do You Need?
- 3 3. Should the Policy Value Remain the Same?
- 4 4. What Does the Policy Cover?
- 5 5. Who Are Will Your Beneficiaries?
- 6 6. Should You Buy a Joint Life Insurance Policy?
- 7 7. How Much Do You Want to Pay?
- 8 Finding the Right Life Insurance Policy