Life insurance is a contract between you and an insurer, where a designated beneficiary of your choice is paid a sum of money by the insurer upon your death. In return, a stipulated amount known as premiums must be paid by you in lump sums or at regular intervals. Life insurance is an absolute necessity if you have people who depend on your income.
You need to evaluate whether your family or loved ones will be able to support themselves financially in the event of your death and if you think they will be unable to do so, you must put a life insurance policy in place. Buying life insurance is quite simple but there are a few steps that you need to follow to ensure you get the life insurance policy that best suits your circumstances.
Step 1: Research
Without proper research, you may get stuck with a life insurance policy which doesn’t offer the right kind of protection or doesn’t provide the amount of cover that you really need. Doing research is necessary to know how much cover is required and what type of life insurance policy you should buy.
Making this decision will become easier after you have acquainted yourself with different types of life insurance policies and have calculated how much they are likely to cost you. In most cases which do not involve a peculiar family situation, it is easy to understand which life insurance product matches your requirements better than the others. However, before buying a life insurance policy it is recommended that you should consult a trusted advisor.
Term Life Insurance
Term life insurance is a widely popular type of life insurance policy as it offers the basic protection which most people commonly need. After a specific term, say ten or twenty years, these policies come to an end. Therefore, these policies match the needs of most people who have a mortgage to pay, and are significantly less expensive than other types of life insurance.
The dependants that we have in our life, such as our spouse and children, tend to need protection for a specific duration of time. Once your children have left home and your retirement fund is in place, you may not find much use for a life insurance policy.
Step 2: How much cover do you really need?
One of the first questions that you may have regarding life insurance is how much cover should you buy. As a general rule, people look for policies which will have a payout that is eight to ten times their annual income. This figure may need to be higher depending on your particular family situation.
It is always best to err on the safe side and over-insure your family. As term life insurance is not particularly expensive, the real danger lies in buying too little. To understand how much cover you really need, you first need to take into consideration the ages of your children and the contribution of your spouse or partner in terms of income.
You must evaluate the level of dependence on both incomes and also take into account the size of debt owed by you and your partner. It is important to factor debt into your calculations as it does not disappear after your death, and your spouse will become responsible for repaying it. To arrive at an estimate, you can make use of life insurance calculators which can be found on the internet.
Another thing that you need to remember is that if the difference between the monthly premiums of two policies is negligible and one offers more cover than the other, then it may be a wise move to opt for the one which provides more protection. The chances are that your employer may be providing you with some form of life insurance, but you shouldn’t rely too much on it. It is quite possible that you may have to change jobs at some point and that your new job may not extend the same protection to you and your family.
Additionally, your ability to buy life insurance and its associated costs depends on your financial position and health. If you lose your job and get sick, you will not only lose coverage but you may become unable to buy more due to poor health.
Step 3: Request a quote
Once you have done proper research, you can begin to shop around. Just as you would do before making any major purchase, you should shop around and try to find the best deal with your life insurance policy. You can get in touch with a life insurance broker to find the best deal or you can also get contact an insurance company directly to get a quote. A broker may charge you a small fee for their assistance in helping you to buy a policy, but they may save you money in the long run.
Step 4: Pick a reputable insurance company
After you get different quotes from different life insurance providers, you need to make a decision as to which life insurance policy you are going to buy. It is a big decision as it has a direct impact on the financial future of your family.
But pricing should not be the sole basis on which you decide which policy you must go ahead with. Picking the right insurer is almost as important as selecting the right policy. By reading the reviews of insurers on the internet, you should get a good idea of their services.
Step 5: Get a health exam
The cost of your life insurance policy is primarily influenced by your health and lifestyle. Once you have decided on an insurer, you may be required to complete a health exam. They may reimburse the costs related to the test, but you may have to book an appointment with the medical company that they generally use for these purposes. The health examination may involve a questionnaire, weight and height measurements, blood samples and past medical records.
By following the 5 steps given above, it is possible to buy the right type of life insurance policy in the most hassle free way.