4 Things to Consider When Buying Life Insurance

Life Insurance

Buying life insurance is one of the biggest financial decisions you will make in your life. It not only protects everyone you love, it can be a valuable tool that you leave behind. Although there are a lot of factors you should look into before you purchase life insurance, we put together a list of the important things you should consider before you purchase life insurance. 

Decide how long you need coverage.

Life insurance is intended either for a fixed period (called life) or for a lifetime (including a lifetime and a lifetime). If you need only a certain period of insurance (i.e. if your children grow up or have the duration of their mortgage), take the term of your child’s care. However, if you are in need of life insurance for as long as you live, consider lifelong compensation (for items such as funeral costs and a spouse’s income).

How much life insurance do you need

One way to calculate the costs is the “DIME” method. DIME stands for the following:

D – Debt (mortgage, car loans, credit cards, student loans etc.)

I – Income replacement Your life insurance policy needs to provide a sufficient income for your family to maintain its standard of living until the youngest child turns 18. In this example, let’s assume that your youngest child will graduate in 11 years; so we’ll multiply your annual income by 11. For example, if you make $50,000 per year, you might consider a $550,000 policy.

M – Mortgage  Usually, a mortgage is one of the biggest items in the budgets of people and you want to have enough life insurance to make the entire payment. When you have passed, paying off a home will provide your family with protection and continuity when times are difficult. With ample life insurance coverage, you will be able to keep your family in their home. 

E – Education (Do you want to fund education expenses for your dependents? What about childcare? If you have children in daycare, do you want your policy to pay for their remaining years in daycare?)

Affordability of the Policy: 

Having an affordable life insurance policy is not only important now – it is important for the future, too. That’s because, when life happens and times get tough, life insurance is often one of the first items people stop paying for.

When you buy a policy that’s affordable, you’ll be much more likely to keep it if you have to make cuts to your budget. 

The problem is, if you let your policy lapse, it can be expensive to reinstate, or even impossible if your health has changed. 

Decide on the Type of Life Insurance You Need

Term life insurance covers the insured for a defined period, like 20 or 30 years. When the term ends, the coverage terminates, unless you decide to renew the policy. Most term life policies provide level term coverage, which means the face value remains the same from the beginning to the end of the term.

Decreasing term policies feature a decreasing death benefit during the policy term. Term life policies don’t build a cash value. When the term ends, you’re no longer covered, with no return of the funds you paid. Typically, you must pass a medical examination to qualify for this type of coverage.

Whole life insurance provides a fixed death benefit and covers you from the time you purchase a policy, until you die. Whole life policies require you to pay a set premium on a scheduled basis. Unlike term life, whole life builds a cash value, based on a value set by the insurer. Once the policy matures, you can take out a loan from the policy or cash out a portion of its value if you decide to drop the coverage.