The decision to purchase life insurance could be the single most important choice you make with regard to your financial security. The peace of mind that comes from knowing that your needs will be taken care of throughout the duration of your life is priceless, and being able to leave something behind for your loved ones assures that they will be cared for in your absence. Of even greater importance is making sure you are purchasing the right type of insurance, and that your policy covers your needs. Here are some important points to consider:
- Why are you purchasing life insurance? Most are hoping to assure the financial security of loved ones, or looking for coverage to fulfill debt obligation and costs associated with final arrangements and estate costs. Additionally, life insurance is often required when negotiating a mortgage, or as part of a business partnership agreement. All of these factors will contribute to how your policy is structured.
- How much life insurance coverage do you need? Know how much is enough to provide for your family in case the unthinkable occurs. Tax considerations, outstanding debt, mortgages, estate costs, and the level of income you want to leave to your loved ones should all be taken into account. Your financial advisor can help you to break down and identify your needs over the long term.
- How much can you afford? Life insurance requires that you renew on an annual basis, and is generally paid monthly. Average budget for life insurance ranges from five to ten percent of ones annual income, but depending on what type of coverage is chosen, premiums can change dramatically, especially at the end of term. Plan to have a little financial cushion to allow for premium changes over time.
- What type of life insurance is right for you? Term or permanent life insurance are the two main types. The purpose of term life insurance is for support in the short-term, and premiums increase as you age. Permanent life insurance provides lifetime coverage and can include additional benefits. The premiums for permanent coverage do not increase over time, and so may be more affordable in the long run. There are also hybrid plans that combine aspects of both term and permanent life insurance.
- Need more flexibility? Insurance riders serve to customize your policy, providing coverage that is specific to your individual needs. Riders can provide the insured with a Plan B to assure peace of mind in case of unforeseen events. Examples of common riders are waiver of premium, which covers your payments in the event you are unable to work due to a critical injury, or guaranteed insurability, which allows the insured to purchase additional insurance at a later date, without being obliged to undergo further medical. Other riders include critical illness, accidental death, child protection, return of premium, and accelerated death.
There is no cookie-cutter answer to what the ‘right policy’ is, as needs differ greatly from person to person, and it is never too soon to consider getting started. Prepare for the unexpected, and give yourself some peace of mind, knowing that you and your loved ones are taken care of in any event. Consult your financial advisor today to discuss your options.