Buying life insurance can be one of the best decisions you will ever make because it protects and ensures financial support for the loved ones you’ll leave behind. When you have passed away it will be too late to worry about your family, too late to make plans, and too late to make any additional provisions.
There are a lot of options and a ton of companies out there, and that can make it hard for you to decide which one to get. As the saying goes, “It is complicated”, and this is one of the reasons why people ended up not getting life insurance at all.
But let me give you five things to consider when buying life insurance for the first time:
Evaluate Current Financial Status
You need to assess your current financial situation before you can figure out the type of life insurance and how much you can afford. You might find out that you are not prepared for the unexpected. If you need any help, consider getting an independent insurance agent to help you determine what needs you should cover.
How Long Do You Need the Coverage?
Decide how long you need the coverage to last. Life insurance can be set for a period of time (eg. 10 or 20 or 30 years) which is Term Life insurance, or it can be lifelong coverage which is Whole Life and sometimes Universal Life insurance. Consider Term Life if you only need insurance for a finite period of time, like when your primary concern is paying college education for your children or for the remaining length of your mortgage. Permanent coverage for long-term needs like burial expenses, leaving money to loved ones or helping pay estate taxes.
Calculate How Much Life Insurance You Need
Use the DIME method to determine costs. DIME stands for Debt (mortgage, car loans, credit cards, etc.) Income replacement (help spouse or partner to pay bills), Mortality (burial expenses), and Education (fund for education expenses for children).
Finding The Right Life Insurance Policy
Once you know how much life insurance you will need, you need to find the right life insurance policy. Options include term life insurance, which is the least expensive and better fit to your budget, or whole life insurance for long-term coverage that builds cash value and is more expensive than term life. Whether you choose term life or permanent life insurance, it always depends on your needs and just as importantly, your budget.
Consult with a licensed insurance agent
A licensed agent can help you come up with the best options that suit your needs and financial goals. You can talk to an independent insurance agent who can guide you through the process.