Insurance is one of the most vital aspects of financial planning. However, understanding life insurance and purchasing the correct product can be quite challenging: you need to be educated on from term to whole life, what (if any) riders you’d like to add, and how much coverage to have.
While being educated independently is a challenge in itself, you’ll likely have to find a broker, sales representative or insurance agent to help select the product that suits your needs. The additional challenge with this step is that the insurance industry has developed a reputation for misleading clients (or telling them what they want to hear) simply to make the sale; so finding somebody that you feel comfortable (i.e. trust) should your ultimate priority.
While we don’t have all of the answers to get you educated in the next 3 minutes, here are some of the considerations that you should have in mind to ensure you find the right life insurance coverage:
You are the only person who knows your entire financial situation and therefore how much insurance coverage you need. However, if you’re unsure, it is possible to get a rough estimate of your insurance needs simply by totaling accumulated debts, around 10x’s your annual income, and estimated funeral costs. While the vast majority of insurance agents/advisors will give you the proper guidance in this regard, a few sales representatives may attempt to sell expensive polices that you may not even need. That being the case, educate yourself on the various insurance products and how much coverage you need in order to pick the right insurance plan.
If you are not able to go through with the above step or simply need some help, it is advisable that you talk to an independent broker. These are usually better than those who are working for a specific company as they are able to offer a variety of options for you to choose from. This way, making an informed decision on the policy that best suits your needs becomes quite simple.
Another quick tip: you should avoid professionals (brokers or captive agents) who give recommendations on the very first meeting as this usually shows that they have really not gone through your situation thoroughly.
Understanding the difference between the two can help you pick the best policy. Avoid being guided by the “what if” scenario as this might steer you away from the coverage you really need. Keep in mind that most insurance companies usually make A LOT more money from whole life as compared to term, thus more effort is put towards selling the former option.
It’s always a challenge when replacing a life insurance policy (which is why states require extra paperwork to be filled out acknowledging that you know you’re replacing a policy). While it may be a good decision to replace an older (possibly unsuitable) policy, it’s important that you fully understand what you’re giving up: shortening the length of coverage if you go from whole life to term, lost premiums that you’ve paid for years, possibly taxes/penalties on your cash value, and you may have higher premiums now because you were younger when you bought the previous policy. So, despite the fact that you have life insurance, it might not be a bad idea to meet with somebody and determine if it’s still a suitable product for you. If it no longer fits your situation, then shop around for other policies that do. Warning: NEVER cancel an existing policy until your new policy is in force (which is not the same as the time you fill out the application for coverage).
Finally, it is important to note that choosing one type of life insurance policy does not mean that you are stuck with it for life as adjustments can be made along the way in case any changes need to be made.
The articles are written by personal finance enthusiasts (not certified professionals) based on their personal experience. What works for them may or may not work for you, and you should always consult a financial advisor before making important financial decisions.
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