Jumat, 01 Oktober 2010
3 Tips for Buying Life Insurance for the First Time
Buying life insurance can be scary! You’ll see endless options in any insurance guide which can be dizzying. Also, you’ll be forced to think about your own death during the evaluation process which, as you can imagine, is never fun. Since this process can lead to high stress, you will want to be prepared and ready to move through it efficiently and effectively without making any errors. Once you purchase the right life insurance policy, you will feel much better about your current situation, as well as the financial safety of your family should you pass away.
The 3 tips below are geared towards first-time life insurance buyers. That being said, anybody in the market for a policy can take advantage of this advice:
1. Find the right type of policy. Many first-time buyers think that all life insurance policies are the same. Nothing could be further from the truth. The two main types of policies are whole and term. You will also come across less common options, including universal and variable life insurance. To be sure of your decision, consider them all.
Whole life insurance covers you until the day you die. When you pass on, your beneficiary will receive your death benefit. With term life insurance, you are only covered for a specified period of time. If you outlive a term life insurance policy, it expires and nobody receives your death benefit. At this point, you will either purchase another term policy or do without.
Before you make your decision, check out this comparison of term versus whole life insurance.
2. How much coverage do you need? Along with the type of policy, you need to consider how much coverage you need. Some experts suggest that your death benefit be at least six to eight times your annual salary. So, if you earn $100k per year, you should have a life insurance policy worth at least $600k. While this sounds multiple of annual salary sounds good in theory, it can be difficult to stick with this formula. Do you really need this much coverage? Do you need more than this? Does it fit in with your budget?
Nobody really knows for sure how much life insurance coverage they need. While you can use a standard multiplier as a starting point, you should discuss this with your family and financial advisor to determine the proper amount. This aspect can vary a lot based on the person’s unique situation.
3. Which company are you going to buy from? This is a detail that is constantly overlooked. Some consumers think that all life insurance companies are created equal. This is not the case now, and never will be in the future. Simply put, a life insurance policy is only as good as the company that you buy from. There are several agencies that rate insurance companies based on quality of investments, financial standing, and other related details. The four major rating services include: A.M. Best, Fitch, Moody’s, and Standard and Poor’s. Among other things, you want to make sure you are not paying too much for your insurance.
As a recent first time buyer of life insurance, these are the three areas where I focused most of my time and attention. While there are other more complex issues to consider as you get deeper into the process, these are the three key areas that you need to be very cognizant of when making your decision.