Life insurance deals with an unavoidable part of life that most folks would rather avoid, due to the less than pleasant circumstances it brings to mind. Even though our tendency is to not want to contemplate death, it is a necessity to have something to leave behind should the unthinkable happen to you. This way your your loved ones grieve only your passing and not financial dire straights. Life insurance can have several elements to it, depending on your choice of plans. Based on the amount of coverage you need, your premiums can vary quite a bit.
Life insurance is a bit different than most insurance policies in that it is used in more than one way. To begin with, you can choose between term life insurance or whole life insurance. The former is life insurance that is available for a specified term, or length of time, usually 1-30 years and is only payable if death occurs during this term. Whole life insurance is payable on death at any age, whether you are 25 or 125.
If you have life insurance through your place of work, it is probably set up as a multiple of your salary (options are usually 1x, 1.5x, and 2x your annual salary). Individual policies may be set up for certain amounts based on your choice as well as what the provider offers.
Questions for the Provider:
When you purchase your life insurance, you’ll want to address certain concerns with the provider of the policy:
Are there any circumstances of death under which the policy will not be paid in full to the beneficiary? There are sometimes clauses regarding circumstances of death (for example, suicide) and time policy is held (sometimes less than one year) that withdraw coverage. At what ages can I expect my premiums to change? Because older age groups have a great mortality rate and a higher risk of needing their life insurance paid out, policy premiums increase over time.
Getting the Lowest Premium:
Greater coverage through your life insurance policy results in higher premiums. By reducing the amount you wish to be paid out upon your death, you’ll be able to lower your premiums. However, don’t risk it too soon; instead, as you age and have fewer bills, you can reduce the payout. When you no longer have a mortgage or a car payment, you can cut back because your spouse won’t need to cover these expenses. As your children move out and finish college, you no longer have to support them and can reduce the payout. Another reduction can occur when each of you and your spouse begin to collect Social Security and any retirement funding you have available.
Reading the Fine Print:
Know what you are signing before you put your name on anything. Review the terms of your policy to ensure that they match the terms you agreed upon with your insurance company, and make certain that you understand your policy. If you have term life insurance, know whether it is a level term or decreasing term policy. A decreasing term policy has a rate that is lowered during the span of coverage, usually yearly, while a level term policy has a consistent payout throughout the length of the term.
If you have whole life insurance, determine if you have traditional, universal, or variable coverage. Traditional is the most common, keeping premiums and payouts level throughout your lifetime. Universal life insurance allows you to adjust your terms throughout the life of the plan, while variable life insurance is like a savings account through which you can invest in stocks, bonds, and mutual funds, all of which may have your policy maturing at a faster rate but are also riskier. A new option offered through some providers is variable-universal, which combines the ability to invest in stocks and bonds for greater reward while maintaining the safety of the opportunity to make changes to your payout and premiums over time.
Additional Coverage to Consider:
It may be of interest to you to invest in more life insurance than you would anticipate needing under normal circumstances, especially if you have any sort of major health problems. If you pass away before your children are grown up and out of school or before your spouse is collecting Social Security, there are cost of living expenses to be paid in addition to the regular funeral expenses. You might still have a mortgage, car notes, college to pay for, and credit cards to pay off. Your spouse may work, but the loss of your income so early on will lead to a deficit in the budget to provide for the family. As your family matures, there is less and less need for this, and you can always reduce the payout.
Also, when you purchase several types of insurance from the same provider, you often receive lower rates. Think about buying your vehicle insurance and/or home insurance from the same company if you can. You may also be able to bundle your health, eye, and dental insurance as well with some providers.
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