The Basics of Life Insurance

The Basics of Life Insurance

No one likes thinking about insurance. It can be depressing trying to account for all of the potential unpleasant eventualities in life and most of us are trying hard just to carve out a little slice of happiness for ourselves. Moreover, I can't think of very many things more boring than sitting through a bunch of sales pitches from insurance agents just trying to get us to write a check every month for something I hope I never have to use.

Sure, insurance is a burden-until we need it. All the depressing issues aside, insurance is an essential and vital financial planning tool that everyone should take advantage of. A certified financial planner can help you to evaluate your insurance needs and will recommend policies that suit your lifestyle. When considering any kind of insurance, from term life to mortgage life insurance, several issues need to be addressed

Do I even need life insurance?

If you have no dependents or loved ones that will be affected by the loss of your income, you may not need life coverage. However, if there are people that depend on you, life insurance is not something you should consider optional. Most people won't really perceive the value of life insurance until they have children. I remember when this first occurred to me. I had always wanted to go skydiving and finally I had my opportunity in all of the excitement, it hit me. What if I don't come home from this trip? My newlywed wife is 7 months pregnant, we are barely making the bills month-to-month as it is and I know there is no way she can do it alone. Needless to say, I cancelled my trip for the greater good of my new family, but I also took a long hard look at my insurance situation.

How much life insurance do I need?

If you are still reading at this point then you have probably recognized how much your loved ones depend on you for financial support. In order to keep supporting them as well as you currently are, even after you pass away, you should choose a life insurance policy that covers at least the full amount of your income for as long as you expect to be working. It is also important to include any substantial debts that will need to be taken care of. For example, let's say you owe 10,000.00 on a car, 70,000.00 on a mortgage, you make 40,000.00 per year, and are 30 years old, planning to retire at age 59. You should select enough insurance coverage to pay off your 70,000.00 in major debt, as well as 29 years worth of your annual income.

What type of life insurance policy is best for me?

All of the various types of life policies have their benefits and drawbacks, however, as a general rule you cannot go wrong with term life. If you purchase term life coverage early, it can be very affordable. Unfortunately, the longer you wait to get a term life policy, especially if you wait until you have developed significant health problems-which tend to occur in old age, the cost can become overwhelming. If you are starting out late in life, it may be a benefit to get a variety of policies. For example, you may want a personally owned mortgage life insurance policy to cover the outstanding balance of your mortgage, along with a modest sum of term life to aid your family with their other financial needs.

What type of life insurance should I avoid?

Whatever you do, stay away from the mortgage life policies offered by your lender bank when you are purchasing your home. The policies they offer are designed to protect themselves and not your family. There are a multitude of mortgage life insurance options available from independent parties that will protect your loved ones. In addition, if you are young and healthy, you probably do not need a mortgage life policy. It would be best to simply purchase enough term life. to cover all of your family's needs.

Whole life policies are often pitched as an investment, however they often have a high price tag and do not provide enough return to justify their cost. Most people are much better off buying term life and then finding a good mutual fund to invest in.

Where should I buy my life insurance policy?

It is always a good idea to investigate various companies before settling on something that is such an important safety net for your family. Ideally, you should talk to a certified financial planner before making any decisions, however, don't underestimate the value of your friends and family's opinions. Talk to the people around you and find out what experiences they have had. Sometimes financial planners will get caught up in the numbers and forget about the people involved. Do some research on the various life insurance company ratings and choose one that is consistently rated high with a stable longterm outlook. Moreover, there are several places online that will allow you to compare rates from all of the top rated U.S. insurance companies.