Life insurance: Tips for first-time buyers
Making decisions when there are a plethora of options is no easy task. When it comes to life insurance, there are different companies, different plans and different levels of coverage. Faced with this difficult decision, many buyers opt for Route 1, without ensuring that it’s the best route.
First-time buyers should be especially careful, however. Life insurance is a long-term plan and should be bought with due care. A bad choice could leave you with buyer’s remorse or a plan that does not suit your insurance needs. However, getting to understand life insurance before you own a policy can help you make informed and prudent choices.
Understand your need
The first thing you should cover is whether you need life insurance right now. Some persons would argue that everyone needs it, but the reality is that some persons really need it, while it’d be a luxury to others. The role of life insurance in your overall financial plan should also be addressed. At this stage, you need to ask yourself the right questions:
- How many financial dependents do I have, and what would happen to them if I passed away?
- Would my financial, or family, circumstances change in the near future? (This is particularly important if you’re single and dependent-free now)
- How would buying life insurance affect my financial plan (Would you still be able to afford sufficient medical coverage?)
The answers to those questions help you to determine the type of life insurance you need and how much coverage you should buy.
Estimate your life insurance needs
Buying too much life cover can be as bad as buying too little. Needs estimators allows you to determine the ideal coverage level based on your circumstances, finances and preferences. There are many free needs estimators online that would help you to get a ball-park figure. In estimating the coverage levels, it’s best to separate short-term and long-term insurance needs as well.
If you know a trusted and qualified insurance sales representative or advisor, you can also liaise with them to determine how much coverage you should buy. Avoid the insurance professionals who have self-interest at heart though.
Familiarize yourself with the life insurance options
There is a debate concerning the merits of term life insurance and permanent life cover. To complicate things even more, there are various types of life policies within each group. For instance, there are various whole life plans, several universal life plans and a number of term life options that you can choose.
Some persons would tell you that term is always better or that it is normally better to buy cash-value insurance. The most important thing is that you buy a plan (or plans) that suit your needs. Making comparisons between plans and among insurers can also make your final choice more appropriate.
Determine whether you need riders and which ones suit your needs
Riders are the informal term for optional supplementary benefits. Some life plans are robust enough that you can add a critical illness benefit or disability income benefit to them. There are many other “riders” that enhance the coverage, but the availability of certain riders may be subject to the plan that you choose. The most common rider among all plans is one that offers double indemnity for cases of accidental death.
Ask to see a specimen contract
The actual life insurance contract may be difficult for the average person to understand. They use a lot of life insurance lingo and legal terms that many persons are not familiar with. In addition, there can be several clauses and exclusions written in the contract – like non-forfeiture options, policy loans and provisions for reinstatement of the policy. You should be aware of these and clarify them with an insurance representative if possible.
Purchasing life insurance should be viewed as a process instead of an event, particularly for first-time buyers who should familiarize themselves with the concept. Sometimes it might seem tedious to do all the work beforehand, but it can save you thousands of dollars. Buying a bad policy is like flushing money down the toilet; it’s worth doing the research on the concept, the products and the companies.