Tips for first Time Life Insurance Buyers

Life and insurance, they go hand-in-hand for all us in our daily lives. But one of the most important types of insurance can be the most difficult for first-time buyers, and that is Life Insurance. Life insurance is no less important than car, homeowners, or health insurance; however, purchasing life insurance is different. For anyone, especially first-time buyers there are important questions you will need to answer before choosing a life insurance policy.

The first question you will need to answer is, why do I need life insurance? Life insurance provides money in the case of the insured individual’s demise, and this is the most widely understood reason for the coverage. Final expenses can be high and create financial difficulties. Burial expenses, medical bills, travel, and legal fees can create a burden on families at a difficult time in their lives. We can offset these burdens with life insurance that will provide funds for these expenses. It can also provide money for other normal expenses or bills that continue during and after this time placing further strain on those individuals. Financial burdens left after extended illness may cause credit issues, repossession, foreclosures, and bankruptcy, but life insurance can prevent that. Estate planning and expenses are not the only reason to consider life insurance. Life insurance can also provide money for future needs such as automobiles, college books and tuition, a new home or repairs, weddings, and retirement. It can protect a business or investments, or even provide income to maintain standard of living for your family.

Secondly, we need to answer the question, How much do I know about life insurance? Insurance can be difficult to understand and provides many options, and features. You should understand general insurance terms such as premium, benefit, and coverage. For life insurance you should also know that the benefit is not paid to a medical provider, lender, or to the insured, instead it is paid to a beneficiary. The insured designates the beneficiary or beneficiaries, and can also choose contingent beneficiaries in cases where the original beneficiary can not receive the benefits. Doing a little research can provide understanding and guidance. You can find information from insurance agents and companies, on the web, and your state’s Insurance Commissioner’s Office. In addition to general insurance information you can also learn more about the different types of life insurance that any first time buyer should be familiar with. There are term policies, whole life policies, universal, and variable.

Term Life – Term life insurance provides coverage for a period of time, or term. The length of the terms vary but generally guarantee the premium and protection for the number of years selected. There are renewal options but your coverage and premium are not automatically guaranteed after the initial period. Term insurance is basic insurance you pay regular premiums for the coverage and the benefit is paid if needed. This provides the lowest cost for life insurance coverage.

Whole Life – Whole life insurance is a guaranteed policy and provides coverage continuously as long as premiums are current. Whole life also offers a cash value that accumulates as premiums are paid. This cash value builds over time and can be used by the insured by borrowing against the available amount. If the insured accesses the cash value they may be responsible for interest payments or their benefit amount may be reduced.

Universal Life – Universal life insurance policies are whole life by nature but they can provide more choices in protection. You can select different options, combine coverage types, or change premiums. And some companies may also provide Variable Life. Variable life insurance provides the coverage and flexibility of Universal Life with the increased earnings potential of combining investment options. Variable Life can provide a great deal of options and some return on your premiums but as with any investment buyers should be familiar with all the disclosures pertaining to their choice.

Accidental Death – Accidental Death Insurance is not true life insurance since the benefits are only paid if death occurs as a direct result of an accident. This type of insurance is very inexpensive and can be a great supplement to a life insurance policy for unexpected occurrences, but it should not be the only coverage selected.

And regardless of what type of insurance or combination of insurances first-time buyers should know all the exclusions and limitations of the policy. They should also understand that policies provide riders or options that can accentuate coverage or effect premiums. Riders can provide accelerated benefits for certain circumstances, increased benefits, or premium options.

The third question first-time buyers should answer is, How much do I need? Everyone’s situation is different, size of the family, financial status, and desired protection. But there are some fundamental items to consider when determining how much insurance coverage to purchase. First, consider your final expenses and determine how much you want available for your family or beneficiary to cover these costs. Just an an average funeral can cost $5-$10,000. Second, review your outstanding debts and decide if you want to provide funds to pay off these debts and which ones. You may want to plan enough to take care of personal debts such as credit cards, car or boat loans, student loans, and medical bills. Then you can consider items like mortgages for primary or vacation homes or other family debts. Do you want these items to remain with the family instead of being sold, and if so can they afford these without the insured’s income. After these basic items are considered the third piece is to determine what additional funds are desired to plan for the future. Even after someone is gone they can still provide income for their families or set up money for future large expenses like college and weddings. After you determine the amount for all of these items add them together and that will give you an idea of the amount of coverage you need. Take into consideration other policies, work benefits, and investments while considering inflation, taxes, and stability. You can also find calculators and information from a number of sources, but you should familiarize yourself with the criteria they base their recommendations on.

Another question anyone considering life insurance should answer is, Where do I get it?
There are many options today including a host of insurance providers, insurance agents, and independent agents. You will see advertisements, you may have current policies with different companies, and you can find even more information on the internet. What is important to remember is don’t rush, shop around. With so many choices and options there is nothing wrong with doing diligent research. What coverage do I want? What will be the best value? How important is convenience? Will combining policies with the same company save money? As you try to answer these questions also understand that your age, health, sex, habits, and even employment can affect your choices. And finally check the reputation of any company before you make a purchase. There are independent companies such as A.M. Best, Standard & Poor’s, Weiss, and Fitch Ratings that provide ratings for insurance companies. The ratings are generally based on the companies financials and claims history and can be an effective guide for selecting a provider.

As with any major financial decision learning the basics and researching the topic will help you make a solid decision. There is not always a right or wrong choice, there is simply your choice. You can ask friends or family or people you trust that have experience with these decisions. Whatever it takes to make a sound decision, that you are comfortable with, is what you should invest in the process. Insurance should provide peace of mind, so should your decision.