Things to Keep in Mind When Buying Life Insurance
Universal Life Insurance Company (Photo credit: Thomas Hawk)
People typically take out life insurance so that their families and loved ones can be taken care of in the event of their death. Unfortunately, most do not get properly informed before choosing one or signing up. The truth is ignorance of some crucial factors can cost you a lot in the long run. As with all financial tools, you should do proper homework before making a decision. Hopefully, that’s why you’re here, reading this article now.
Know the Difference Between Term and Whole Life
Many don’t even know the difference between Term Life Insurance and Whole Life Insurance. Well, in simple terms, Term Life is basically temporary life insurance that you can renew after a specified number of years –usually 10-20 years.
Whole life on the other hand is the same as permanent life insurance with a savings plan. They’re both good. Just depends on where you’re at in your life right now and what your financial goals are. We recommend however, that if you’re still young –say between your 20’s and early 40’s- choose Term Life. Whole life can be quite expensive and high maintenance.
Costs Involved
It can be quite expensive, depending on the policy you choose. Term life for instance is typically cheaper than Whole life insurance. So, find out how much you’ll have to pay as premium monthly and annually. This is to make sure that you don’t default on your payments or stop altogether in the future –a common occurrence by the way. Calculate your current income after taxes and see if it’s something you can afford. If you can’t afford one firm’s rates, try shopping around for more reasonable alternatives usually offered by some of the best life insurance companies.
It’s Not The Same As An Investment
Many people often confuse insurance for investments. They are not the same thing. Insurance is a form of savings meant to help you provide for your loved ones when you’re no longer around to do that while investments are high or low risk a wealth building tools that can potentially help you earn way more money than insurance. Think of life insurance as a protector of your income. Agents may try to sell you on the cash value of their insurance policy and make it seem like an investment. This is not true at all.
Can Complement Other Savings Options
Smart people know that insurance is just a form of savings. So, they complement it with other forms of savings like 401ks, IRAs, ROTH and so on. Depending on just your life insurance for financial security isn’t a smart idea. If anything, it will make you and you loved ones vulnerable. Instead, use it as one of your financial and retirement planning tools and you’ll be fine.
Agents Will Try to Push the Whole Life plan
This is one thing you must always have at the back of your mind. Many insurance agents will try to sell you the Whole Life policy as against the Term Life. This is because Whole Life insurance -which by the way has many variations including Universal Life- attracts higher premiums and they get to earn as commission, between 80%-100% of your annual premium.
Insurance Becomes Pricier with Age and Health Risks
The best time to get insurance is when you’re young –typically between 20 and 45. The premiums are typically lower for younger folks. This is because they are generally considered as lower risk and have lesser health problems. Older people on the other hand are considered high risk. And if you combine that with dangerous lifestyle habits like smoking and drinking, your premium rates will be higher.
Not Everyone Needs Insurance
Assess your unique financial situation and then decide if it’s something you need. People who have a lifelong habit of saving and have been able to save a significant amount of money may not really need insurance.Children in particular, do not need life insurance. Don’t be fooled by agents who tell you this. If -heaven forbid- your child dies, there’ll be no one to claim the benefits.
Do you think we covered the most important things or have we missed something? We’re looking forward to your comments. Sound out and let’s know what you think.
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Category: Life Insurance
