Understanding which questions to ask can help you approach and understand life insurance, and provide real peace of mind.
Before the COVID-19 pandemic, nearly half of US adult consumers had no life insurance.1 For many, an ongoing lack of coverage is likely to be a cause of stress, but acting now could prevent it from becoming an issue in the future. If you’ve considered applying for a life insurance policy but aren’t sure where to start, here are six things to think about to help you make the right decision.
1. Why would I need life insurance?
The easiest way to answer that question is to imagine what you would want to happen if you aren’t around. If anybody relies on you financially, be it a spouse, children, dependent parents or even employees, you may need life insurance. Remember that it’s not about putting a monetary value on your life, but about mitigating the financial impact of your absence.
2. How much protection do I need?
Before you buy any kind of life insurance, you need to think more specifically about the type and level of coverage that’s right for you. This will depend on factors including your age, the time until you retire, your dependents, your salary and whether you rent or own your home. A conversation with a financial professional can help you determine how life insurance fits into your overall financial strategy.
3. What’s the difference between whole life and term life insurance?
The two main types of life insurance on the market are whole life and term life insurance. Whole life insurance gives you guaranteed protection for as long as you live (provided you pay the premiums) as well as the potential to accumulate a cash value that’s guaranteed to grow over time. As the name suggests, term life insurance covers you for a specific length of time. It can be a cost-effective way to cover specific needs which will disappear as you get older, such as income and mortgage protection, and can be converted* into a whole life policy as your needs change. For many people a blend of term and whole life insurance may be an appropriate solution. To compare the two types further, see our comparison table.
4. Who is involved in a life insurance policy?
As well as the insurance company (the insurer), several people are involved in an insurance policy. The owner of the policy is responsible for paying the premiums to the insurance company. The insured is the person whose life the policy is covering. The beneficiary is the person (usually the insured person’s spouse and/or dependent(s)) who will receive the funds should the worst happen.
5. What happens if my circumstances change?
If your circumstances change you may want to consider changing or increasing your policy face amount (although increasing coverage might require going through the underwriting process again.) For example, if your health situation improves significantly, perhaps because a pre-existing condition has been alleviated or because you’ve stopped smoking, you may be able to adjust your policy. On the other hand, if you start to earn a lot more and this leads to a significant change in lifestyle and expenditure, you may want to increase your coverage.*
6. How can I find out more?
Partnering with a financial professional is a great way to get more detailed and tailored answers to your questions. They can help you work out exactly what you need and create a strategy that evolves as your needs change over time. If you’d like to be contacted a by financial professional go here.
*Certain guidelines for term conversions may apply
1LIMRA. ‘Is Life Insurance Tomorrow’s Problem? Findings from the 2020 Insurance Barometer Study.’ LIMRA website. June 16, 2020. Accessed June 25, 2020. https://www.limra.com/en/newsroom/industry-trends/2020/is-life-insurance-tomorrows-problem-findings-from-the-2020-insurance-barometer-study/
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