No matter how the life insurance industry marketers spin it, there is a reason many people avoid their product—thinking about how your loved ones will benefit from your untimely demise is not particularly life affirming. But, if you are the primary wage earner for your family, have debt (a mortgage or student loans), are responsible for a disabled child, or want your children to experience higher education no matter what happens to you, you may want to consider buying life insurance.
Wondering what exactly to consider when you do? Here are five tips to help you through the process.
- See if you already have life insurance. Many employee benefits packages provide basic life insurance coverage. Often the policy is in an amount that is at least equal to your salary and will escalate as your salary increases, which could be sufficient coverage if you are single. But be wary of supplemental plans, warns Jim Reardon, J.D., CFP of Peoples Wealth Management, LLC in Topeka, KS. “These add-on policies may seem affordable because only a small amount is taken from each of your paychecks,” Reardon explains. “On an annualized basis, they can be more expensive than other alternatives.”
- Term insurance is likely to be the right answer. While there are other types of policies, those policies tend to be complex and expensive to maintain. Typically, they are more appropriate for high-income earners, individuals with business partners, and people with large amounts of accumulated wealth. If that isn’t you, at least not yet, then term life insurance will probably make more sense.
- Only buy what you need. Determining how much insurance to buy is one of the most intimidating aspects of buying coverage. A good rule of thumb is to buy enough so that after your debt and final expenses are paid, the remaining amount, when invested, generates sufficient income to meet the ongoing expenses of anyone who is financially dependent on you.
- Pay as little as possible. “Be a shopper, not a consumer, of life insurance,” advises Reardon. Comparison shopping is something you can do yourself through one of the online sites. But, your local independent insurance agent can also help you find the lowest priced policy for your needs. Reardon also suggests paying your premiums on an annual basis rather than monthly, to avoid incurring an unnecessary “convenience” charge, which adds unnecessarily to the expense.
- Buy when you are young. Insurance is the cheapest for those who are the least likely to need it. Buying a policy when you are young and healthy and locking in your premiums for as long as possible, reduces the overall cost and enables you to save more of your discretionary income for retirement.
Once you purchase coverage, review it regularly. As your assets grow over time, and you move through your family formation years, put your children through college, pay off your mortgage and near retirement, you may find you’ve accumulated sufficient assets so that you no longer need life insurance.
Some comparison shopping sites to get you started: