6 Questions to Ask Before Getting Life Insurance
A life insurance policy could help you protect your loved ones financially if they lose your income. Life insurance can help them pay for things like a mortgage, auto loans or even a college education for your kids. But life insurance policies aren’t one size fits all.
Before you jump in and decide, it's crucial to ask yourself some key questions to ensure you're getting the right coverage for your needs.
Do I Even Need Life Insurance?
Most of us can benefit from having a life insurance policy. This is especially true if you have a partner or children who rely on your income. Life insurance provides them with financial security to maintain their lifestyle if something happens to you.
Life insurance can also protect your beneficiaries from your expenses becoming financial burdens. For example, a policy with a smaller death benefit (and more affordable premiums) may be enough to pay for your debts or cover funeral costs.
How Much Coverage Do I Need?
As a rule of thumb, many financial advisors recommend a policy worth 10 – 15 times your annual income.
You could also use the DIME method to determine how much you need:
- Debt: Calculate all your debts – except for your mortgage.
- Income: Multiply your salary by the number of years you think your family will need financial protection. For example, if you’ll have children in the home.
- Mortgage: The current payoff amount of your mortgage.
- Education: The estimated cost of sending your children to a four-year university.
Once you have those totals, add everything together. Use that number to estimate your life insurance payout (aka the death benefit).
What Kind of Life Insurance Do I Need?
Choosing the right type of life insurance depends on your financial goals. There are two main types of life insurance: term life insurance and permanent life insurance.
Term life insurance provides coverage for a specific period, typically ranging from 10 to 30 years. It is usually the more affordable option. Term life insurance could be a good choice if you want to provide financial protection for your loved ones during a specific period — like if you have dependent children or a mortgage to pay off.
On the other hand, permanent life insurance provides coverage for your entire life and includes a savings component. It can be more expensive but also builds cash value over time that you can borrow against. Permanent life insurance can be a good choice if you want whole life protection or want to use the policy as an investment or estate planning tool.
How Do I Get the Best Deal on Premiums?
Life insurance companies consider factors like your age, gender, health and even lifestyle choices to determine your premiums. Some things you can’t change. But you can take steps to find the best deal possible.
- Don’t buy more than you need. Have an idea of the policy amount you’d like in place before comparing rates. The larger the policy, the larger the premium.
- Start early. Typically, life insurance premiums are lower for younger buyers. By opting into life insurance earlier, you’ll save money overall.
- Shop around. You may find a better deal on a similar policy by comparing rates against several insurance companies.
Will I Qualify if I Have Health Issues?
Many life insurance providers use basic lifestyle questionnaires and physical examinations to determine your risk class. Being in a higher-risk class may result in a higher premium. However, pre-existing conditions will not automatically exclude you from getting a life insurance policy.
You may also qualify for lower premiums in the future. If your health improves, you can request a reevaluation to determine if you’re a candidate for a lower-risk class.
How Do I Choose an Insurance Company?
When choosing a life insurance provider, it is essential to consider a few key factors.
- Research financial stability. Look for a provider with a solid financial rating from a reputable rating agency, such as A.M. Best or Standard & Poor's, to ensure that the company can fulfill its obligations to your beneficiaries.
- Consider the range of policies and coverage options offered. Look for a provider that offers coverage that best fits your needs and allows you to customize your policy to suit your circumstances.
- Factor in costs. Consider the cost of the policy, including the premium payments, fees and any potential penalties for canceling or adjusting the policy.
- Evaluate customer service. Look for a provider with a strong reputation for customer service and that offers easy-to-use online tools and resources to manage your policy.
Finding the right life insurance company shouldn’t take up your free time. With our Life Insurance Comparison tool, you can quickly compare rates and policies from several reputable providers.