Buying life insurance is an easy way to protect your family after you're gone.
If you know what to look for, you can get great coverage at a price you can
afford.
Why buy life insurance?
Topping the list of reasons to buy life insurance is the financial protection
life insurance offers. If you're single and just starting out, you may not need
life insurance. But as you take on more responsibilities and your family grows,
your need for life insurance increases. The proceeds from a life insurance policy
can replace the income lost to your family upon your death. You might also want
to buy life insurance to pay off debts and expenses, leave money to charity,
and cover final and estate expenses.
Choose term or cash value
There are two basic types of life insurance: term life insurance, which provides
life insurance coverage for a specified period of time (the term), and cash
value (permanent) life insurance, which combines a death benefit with a cash
value component. Cash value insurance offers lifetime protection, while term
insurance may be the most affordable option if you're buying life insurance
mainly for the financial protection it offers, and your need for life insurance
is temporary (until your children leave the nest, for instance). Some term policies
(called "convertible") will permit you to exchange the term life insurance
policy for a permanent one at some point.
Decide how much coverage you'll need
The amount of life insurance protection you should buy depends on how much income
your survivors will need, how much you own and owe, and the amount of other
life insurance available to you. If you're married, both you and your spouse
should consider buying life insurance. One of the easiest ways to estimate how
much life insurance protection you should buy is to use a life insurance needs
calculator.
Pick a number between 1 and 30
Term life insurance is usually offered for periods ranging from 1 to 30 years.
Consider choosing a term that matches your need for life insurance protection.
For instance, if your main reason for buying life insurance is to protect your
7-year-old twins until they're out of college, you'll want to buy a policy with
a term of at least 15 years.
How much will it cost?
How much you pay for life insurance will depend on a number of risk factors,
including your age, your health, whether you use tobacco, your family health
history, and the type and amount of life insurance you're buying. Keep in mind
that the premium you're quoted initially will increase later. For instance,
when you buy term life insurance, rates are guaranteed only until the end of
the term (annually for annual renewable term or at the end of a specified number
of years for level term). While most life insurance policies can be renewed
at the end of the term, you'll pay a higher premium for coverage.
Shop around
When comparing quotes for life insurance, make sure that the insurance coverage
you're comparing is similar. And remember, any policy that you buy is only as
good as the company that issues it. Find out what rating the company has received
from major ratings services, such as A. M. Best or Standard & Poor's. These
companies evaluate an insurer's financial condition and claims-paying ability.
The company giving you a quote should provide you with this information. You
can also contact your state's department of insurance to find out more about
an insurer's record.
Submit an application
Once you're ready to purchase a life insurance policy, you'll fill out a life
insurance application that contains questions about your current and past health
history and lifestyle. You'll generally be required to take a medical exam,
arranged and paid for by the insurance company. The answers you give on your
application, along with the results from the medical exam and your past health
history, will help the insurance company determine whether to offer you a policy,
and if so, at what price.
Learn the lingo
Maybe a life insurance contract isn't as exciting as a best-selling novel, but
read it anyway. Policy provisions, the amount of benefits, the premium, and
other charges you'll pay will be listed along with other important information
such as the beneficiaries you've named and the premium guarantee period. Make
sure you understand everything in the policy. Under the laws of your state,
you may have a "free look" period (typically at least 10 days) during
which time you can cancel the policy without penalty.
Please note that this description/explanation is intended only
as a guideline.