Without a knowledge of industry terms, buying life insurance can seem complex and confusing.
A little research (and some guidance from your agent) goes a long way toward finding the policy you need without a lot of hassle.
When looking into life insurance, consider the following key components.
1. Determine your need for life insurance
Different people need different amounts of life insurance for different reasons. Do you need to pay for a child’s college education? Do you need to pay off your mortgage to help a nonworking spouse? Remember, the primary purpose of life insurance is to provide financial support for your dependents in the event you are not able to do so. Understanding what your life insurance should cover, before you begin shopping, will help you choose the right policy.
2. Know when to choose permanent vs. term life insurance
Term life insurance provides coverage for a limited period of time, such as ten, fifteen, or twenty years. This is different from permanent life insurance, which provides coverage for your entire life. Typically, term life insurance is less expensive than permanent life insurance. Depending on how long your dependents will rely on you financially, a term life policy may be the best option. For example, children eventually move out of the house and get jobs.
3. Know how much life insurance to buy
Finally, you’ll need to understand the needs of your beneficiaries. How much money do each of your dependents need, and for how long will they need it? Keep in mind that your spouse and children will likely have different needs. Additionally, if your children are different ages, each of them might have different needs.
It might help to calculate the life-insurance needs of each dependent, then add them together to determine your total coverage amount.