The majority of insurance policies provide financial protection for you in case of an unexpected event. From health insurance and auto coverage to homeowners insurance, these policies provide financial coverage if you get sick, have a car accident, or experience damage to your home. However, a life insurance policy is unique in that it is meant to provide financial support for your spouse or other loved ones in the event of your death. The premiums that you pay for a life insurance policy provide a death benefit for your beneficiaries. The proceeds from life insurance coverage can help take care of final expenses, pay off debt, or provide financial support to your loved ones.
Before you do anything else, you should look at your situation to determine if you need life insurance coverage. As a general rule, when someone has a spouse, children, or other family members that rely on their income, a life insurance policy could ensure that they are taken care of should something happen. Your dependents and financial obligations to them is the biggest factor for determining the need for life insurance coverage.
Aside from dependents, there are a few other things to consider when choosing life insurance, such as the type of coverage and premiums. Like any other policy, a life insurance policy should fit into your overall master financial plan as a safety net should the unexpected happen. Let’s take a look at some things to consider when choosing a life insurance policy.
As discussed, the major reason someone purchases a life insurance policy is to provide financial assistance to loved ones and family. Your beneficiaries will receive a lump-sum payment to pay off debts or provide income. When discussing policy options with life insurers, you’ll need to determine the amount of life insurance you need. Factors such as your mortgage, credit card debts, car payments, and other financial obligations should be considered.
If your spouse or loved ones will not be able to pay off some of these debts alone, you should consider coverage amounts that could take care of this. Additionally, you might consider future needs such as college tuition. The coverage amount that you select will depend on your situation and unique needs. You’ll want to find the right coverage to provide the protection and support that your family will need.
Type of Coverage
Various insurance plans offer different coverages, exclusions, and limits. The type of coverage you select will be dependent on your goals and needs. A term life insurance plan will usually provide coverage for a 10, 20, or 30 year period. The policies typically come with lower rates and higher coverage amounts, but they are only valid for a specific period. Most people select a term life policy to last through the duration of their mortgage and dependent years. By the time a term life insurance policy expires, your home might be paid off, and your children could be grown and supporting themselves.
Whole life insurance is also known as permanent insurance. Whole life policies tend to be more expensive, but they last your entire life as long as you continue to make the premium payments. A whole life insurance policy also has a cash value component that allows the policy to increase and allow the policyholder to borrow against it. These policies come with several benefits but also with higher rates.
Purchasing a life insurance policy will require evaluating your goals for having insurance and your family’s needs. You also need to consider the cost of insurance and the premium that you will pay. Insurance companies consider several factors when determining insurance rates. A life insurance policy can provide peace of mind, and with some considerations, you can select the right product that fits your needs and situation.