If you’re like most people, you probably only have life insurance through your employer. However, if that is the only life insurance you have, you are counting on that single policy to take care of your family if something happens to you. Many people put off purchasing more life insurance because they aren’t sure how to choose the best life insurance for their needs. Finding the right life insurance policy may not be easy, but it is one of the most important things you can do to care for your family’s future.
Start by figuring out how much life insurance you actually need. At a minimum, you will need to find a policy that covers costs associated with your death, such as a funeral and burial, as well as doctor or hospital costs that may come as a result of a battle with a long illness. You will also want to cover any taxes that will be levied against your estate, and plan for the day-to-day expenses that your family will need to cover. For most people, the right life insurance policy is five to seven times their annual income. When you decide how to choose the best life insurance, you will want to know exactly how much coverage you need without going overboard.
Once you have figured out how much your policy needs to be worth, you need to figure out how to choose the best life insurance type. Term life insurance is a policy that covers you for a certain number of years- for example, for twenty years or until you turn sixty five. These policies are often less expensive than other policies, and the rate is generally guaranteed during the period you own the policy. However, unlike other forms of life insurance, term life policies don’t gain cash value and they may not be renewed when they expire.
Permanent life insurance covers you for as long as you are alive, as long as you pay your monthly (or annual) premiums. This type of life insurance may have a cash value, also called a “cash surrender value” which allows you to surrender your policy for a portion of the total value of the policy or even take a loan out against the value of the policy. Permanent life insurance comes in “whole life” or “ordinary life” versions, in which premiums remain fixed and must be paid regularly.
Some people prefer “universal” or “adjustable” life insurance policies, which can be purchased and paid for at any time, as long as you follow the rules that the company sets. Variable life insurance allows you to decide how you want to invest the premiums you pay among different types of investments. This means that the total value of your policy will vary, depending on the value of those investments.
As you start looking at different policies, you will want to decide how to choose the best life insurance policy based on the needs of your family. Talking with an insurance agent is a great way to better understand what you need to provide for your family in case something happens to you.