Learn all about the basics of life insurance so you can make an informed decision.
I will show how life insurance works and what you need to know to get you started.
Many people buy life insurance for a variety of reasons, but it always boils down to one central and vital concern – you want to see that your family is financially protected and well looked after if you were to suddenly die.
Buying life insurance takes a bit of planning and some careful thought. After all, the life insurance policy you buy will be a long term investment. You want to get the right amount to cover you for a lot years into your future.
Reasons Why You Want Life Insurance
The first step is to decide on the reasons you will want to buy life insurance. Your objective to buy life insurance could be a single reason or include several of the reasons listed below. These reasons include:
- Income Replacement
- Pay for death and funeral expenses
- Pay off your debts such as the mortgage, credit cards and personal loans
- Cover medical expenses not covered by other plans if you are faced with a terminal illness
- Pay for children’s college tuition
- Retirement and savings plan
- Leave a financial legacy to your survivors
- Business reasons such as if you’re self-employed or in a partnership
- You want to set up an estate
These are just a few of the reasons why you might need to get life insurance if you have a family of four. You need to give thought not for your current reasons for buying life insurance, but reasons which may come up down the road in your future.
Decide How Much Life Insurance You Need
Once you are comfortable with the reason you want to buy life insurance, you need a rough ballpark of how much you might require to cover these reasons. As a rule of thumb, the basic minimum amount recommended by many experts is that you should have about ten times your annual wages.
It also depends on how much you can afford to budget yourself for, and what is reasonable for you.
Next, you have to decide what type of life insurance policy to buy. So, let’s start with the basics.
Types of Life Insurance
There are 2 types of life insurance to select from and they include:
- Term Life Insurance
- Permanent Life Insurance
Let’s look at each in a bit more detail so you will have a basic idea of the differences.
Term Life Insurance
Term life insurance is the most popular to buy because it’s so basic and easily the most affordable type of life insurance which is available.
Term life insurance is pretty straightforward. You buy term life insurance for periods of time such as 5 years, 10, 20 or 30 years for example. The main features of term life insurance include:
- Pays out death benefits only
- Death benefits are not taxable and are paid as a lump sum
- Premiums are guaranteed for the term you buy
- Is renewable
- Can often be switched over to a permanent life insurance policy
All you have to do is decide on the amount of death benefits you want and the length of time or term you want.
You should know that term life insurance is cheapest when you are younger and becomes progressively more expensive to buy as you age.
If you are a family of four and relatively young, then you should buy a policy now rather than later. If you are younger I would also suggest you buy a longer term policy, because it will become a lot more expensive to buy when you go to renew.continue page 2……