Life insurance has become a commodity. It’s now easier than ever to apply for a policy—you can even do it online. Because of this ease, it’s tempting to not think through the policy you’re applying for. What should you know before buying life insurance? Consider these three things:
1. The goals of your policy.
This may seem simple enough. After all, don’t you want life insurance to provide for your family if you passed away? So many people are underinsured because they haven’t practically thought through what they want their life insurance proceeds to do.
For example, one popular rule of thumb is to get a death benefit amount equal to ten times your annual salary. If you make $100,000, that would mean a death benefit of $1 million. If your family expenses are around $80,000 per year, how long would $1 million last if your spouse is using $80,000 of it yearly?
What about paying off the mortgage with the proceeds or investing in future college expenses? These things wouldn’t be feasible if you used the “rule of thumb.” Instead, a comprehensive calculation of your life insurance needs is necessary for adequate coverage.
2. The company’s terms for conversion.
If you’re looking at term life insurance policies, your coverage will only last for the term you choose (i.e. 20 years or 30 years). But you don’t know what the future holds. You might find that you still need life insurance beyond your original term.
For example, if you are a business owner, chances are you might still have a business asset that you need to protect against your untimely death. Or there might be an issue with future estate taxes that need life insurance as part of its planning. Also, you could have a goal to leave a legacy, which life insurance can help provide.
Because of these future unknowns, most life insurance companies offer term conversion riders on their term policies. This means you have the option to change your term policy into a permanent policy.
Some term conversion riders are more generous than others, so check your policy details. There is a time period that the conversion is allowed. Policies with longer conversion periods are recommended.
3. Working with an agent to find the right company for you.
Did you know each life insurance company has its target customer market? Just because you have your auto and home policy with a particular insurance company doesn’t mean they will offer you a competitive life insurance policy.
Some companies will be better if you have certain health issues, use tobacco, or have a family history of cancer. Others offer higher limits for “key person” business life insurance policies or offer a discount if you also have your disability insurance with them.
If you don’t want to spend your time researching life insurance companies’ underwriting guidelines, work with a wise advisor, like Ryan, to help find the best policy for you.
