This guide will help you understand the basics of life insurance and will show you how to save money when you shop for life insurance. It helps you to:
When you buy life insurance your first step is to decide how much life insurance you need, how much you can afford and the kind of policy you want. Then, find out what various companies charge for that kind of policy. Not buying more insurance than you need is one way to make life insurance more affordable. A good company will be able and willing to help you with each of these shopping steps in order to get affordable life insurance and the right coverage you need and can afford. Beware of sales agents who will try to upsell you into paying higher premiums and more complex policies and more commission for them.
One way to decide how much life insurance you need is to figure out how much cash and income your dependents would need if you were to die. You should think of life insurance as a source of cash needed for expenses of final illnesses, paying taxes, mortgages or other debts. It can also provide income for your family's living expenses, educational costs and other future expenses. Your new policy should come, as close as you can afford to make up the difference between (1) what your dependents would have if you were to die now and (2) what they would actually need. This is a starting point, but if it ends up that you cannot afford what you need remember that some insurance is better than no insurance. There are many tools online to help with this such as: Money Central Life Insurance Needs Estimator
All life insurance policies agree to pay an amount of money if you die. But all policies are not the same. There are three basic kinds of life insurance.
Term insurance is death protection for a "term" of one or more years. Death benefits will be paid only if you die within that term of years. Term insurance generally provides the largest immediate death protection for your dollar. Some term insurance policies are "renewable" for one or more additional terms even if your health has changed. Each time you renew the policy for a new term, premiums will be higher. You should check the premiums at older ages and the length of time the policy can be continued. Some term insurance policies are also "convertible". This means that before the end of the conversion period, you may trade the term policy for a whole life or endowment insurance policy even if you are not in good health. Premiums for the new policy will be higher than you have been paying for the term insurance.
Whole life insurance gives death protection for as long as you live. The most common type is called "straight life" or "ordinary life" insurance, for which you pay the same premiums for as long as you live. These premiums can be several times higher than you would pay initially for the same amount of term insurance. But they are smaller than, the premiums you would eventually pay if you were to keep renewing a term insurance policy until your later years. Some whole life policies let you pay premiums for a shorter period such as 20 years, or until age 65. Premiums for these policies are higher than for ordinary life insurance since the premium payments are squeezed into a shorter period. Although you pay higher premiums, to begin with, for whole life insurance than for term insurance, whole life insurance policies develop "cash values" which you may have if you stop paying premiums. You can generally either take the cash, or use it to buy some continuing insurance protection. Technically speaking, these values are called "non-forfeiture benefits". This refers to benefits you do not lose (or "forfeit") when you stop paying premiums. The amount of these benefits depends on the kind of policy you have its size, and how long you have owned it. A policy with cash values may also be used as collateral for a loan. If you borrow from the Life Insurance Company, the rate of interest is shown in your policy. Any money which you owe on a policy loan would be deducted from the benefits if you were to die or from the cash value if you were to stop paying premiums.
A modified whole life insurance policy (Burial Insurance) pays a sum to you, the policyholder, if you live to a certain age. If you were to die before then, the death benefit would be paid to your beneficiary. Premiums for burial policy insurance are higher and cash values are lower than for the same amount of whole life insurance. Therefore, burial insurance will provide the least amount of death protection for your premium dollar.
Once you understand the basics of life insurance and you know what you are looking for you can begin shopping and comparing. Shopping online is a great way to compare costs and many new tools help keep it competitive. Websites like selectquote, accuquotelife, compuquotes and many others can be helpful. Beware however that depending on who you use that these companies are lead aggregators who get paid to provide your information to life insurance companies as sales leads. This could mean a barrage of emails and phone calls and subsequent visits to the kitchen table. That is why Lion Life is working on a new no hassle method of providing affordable life insurance. But that is a topic for another day.
Life Insurance, married or single, shows that you have Financial Responsibility. Even if you cannot afford all the coverage you need you are still better off purchasing some insurance to help protect your family if something happens to you. You can always add more as your income increases.