A Life Insurance Buyers Guide

Buying a life insurance policy can be an intimidating process but It doesn’t have to be. This guide will tell you about why you should buy life insurance, the different kinds of policies, and how to buy them.

Why Buy Life Insurance

The best life insurance companies will all tell you that it’s a valuable tool when it comes to financial planning. Here are some reasons why having the right life insurance is important.

• Income – Life insurance can replace your income for the people (children, spouse, siblings, etc) who depend on it. 
•  Expenses – Funeral/burial costs, probate/estate administration costs, and debts/medical expenses not covered by health insurance can all be paid with life insurance.
•  Inheritance – Buying life insurance and naming your heirs as beneficiaries is an easy way to create an inheritance for them.
• Taxes – Life insurance can pay estate taxes so that your heirs won’t have to liquidate assets or reduce their inheritance. 
• Charity – Naming a charity as the beneficiary of your life insurance allows you to make a larger contribution than donating what you pay for the policy’s premiums.
• Savings – Some policies create a cash value that can be borrowed or withdrawn by the owner if it’s not paid out as a death benefit. Any interest paid is tax-deferred and tax-exempt if it’s paid as a death claim.

Types Of Life Insurance

The two main types of policies are term life insurance and whole life insurance. Whole life is sometimes referred to as permanent life insurance and has different versions that include traditional whole life, universal life, variable life, and variable universal life. Here’s some information about the different types of individual life insurance policies.

• Term – This is the simplest type of life insurance. It pays only if you die during the term of the policy and usually has no other benefits. For level term policies, the death benefit stays the same for the entire term, and for decreasing term policies the death benefit reduces over time.
• Whole Life/Permanent – This policy pays a death benefit whenever you die. The three major policy types are traditional whole life, universal life, and variable universal life. With traditional whole life, the death benefit and the premium are designed to stay the same for the life of the policy. Universal life and variable universal life insurance are variations of traditional whole life insurance.

How To Buy Life Insurance

Now that you know why you should buy life insurance and the kinds of policies that are available, you should know how to buy it. 

• Need – If no one depends on you financially, you have no debt, and your estate has enough money to pay its taxes and expenses, you probably don’t need life insurance. Otherwise, you’ll probably need some type of life insurance.
• Amount – There are two questions to ask:
  • What financial resources will your survivors have?  Consider social security/other retirement-related survivor benefits, group life insurance, and other assets/resources and know when they will become available.
  • What financial needs will your survivors have? Consider final expenses, debts, and income needs.

Subtract your survivors’ resources from their needs to determine how much insurance you should buy. 

• Objectives – Some policies include features that can be used for things other than paying death benefits, like savings.
• Types – Different types of life insurance serve different needs. If you only need the insurance for a specific period of time or have a limited budget, a term policy might be a good fit. If, however, you need the insurance for as long as you live and want to accumulate savings, a whole life or universal policy may be the way to go.
• Riders – Some policies include a waiver of premium and guaranteed insurability rider in their basic contract but, if not, it’s usually a good idea to add them. Waiver of premium pays the policy premium for you if you’re disabled. Guaranteed insurability lets you add to the policy benefit without providing evidence that you are insurable.
• Shopping – Quotes can vary significantly between life insurance companies so it makes sense to shop around.
• Premiums – There are often additional charges for paying smaller amounts more frequently so it’s better to pay annually if you can.
• Beneficiaries – Tell your beneficiaries which company issued your policy, where to find a copy of the policy and if there’s anything you want them to do with the death benefit. Store your documents so that they can be easily found and accessed by your beneficiaries.

Hopefully, this guide has given you the information you need to find the best life insurance for your needs. If you’re ready to buy a policy or if you want some more information to help you with your decision just get in touch with us, we’ll be happy to help!