How to Find a Life Insurance Policy That Meets Your Needs

We are living in a world full of uncertainties. No one can predict what will happen in the future, but there is one thing that you can do – prepare. Among others, one of the best ways to do so is by having life insurance.

By paying a regular premium, life insurance provides peace of mind for you and your family. It is a financial safety net and can also act as an investment, depending on the type and coverage.

Buying life insurance, however, is not a walk in the park. The options abound, but they are not all the same. Read on and we’ll share some tips that will help you make a well-informed decision.

Start by Learning the Different Types of Life Insurance

When looking for the right life insurance coverage that suits your needs, one of the most important is to be familiar with the different types available. This will make it easier to narrow down the possibilities and pick the one most suitable for your needs.

1. Term Life Insurance

It is a kind of life insurance with a pre-determined expiration period. You will pay a premium until the end of the coverage. During this period, the rates are the same. You can choose to extend term-life insurance once the period has lapsed, but the rates will be higher. If you die during the term, the insurer will pay a specific amount to your beneficiary. It is one of the cheapest ways to have life insurance.

2. Whole Life Insurance

With whole life insurance, you are covered throughout your life. This policy is inclusive of a cash value component. This means that a part of the premium that you are paying will be allocated to an investment-like and tax-deferred account. This is a great way to support long-term dependents, such as children with disabilities. However, because of the guaranteed benefits, it is often expensive.

3. Universal Life Insurance

This is another type of permanent life insurance that you might want to consider. It also has lifetime coverage and cash value like whole life insurance. However, the main difference is that universal life insurance has more flexible premiums. You can decrease or increases the specific amount of the insurance premium that goes to a specific benefit.

4. Variable Life Insurance

The name of this kind of life insurance is a reference to the variable interest rate that the insurer determines. You can see bigger gains, but there is also a high risk that you will lose money on your cash value and death benefits.

5. Burial Insurance

Compared to most types of life insurance, it has a small coverage. As the name implies, it is meant to cover only funeral costs and similar expenses that are associated with your burial. It usually does not require a medical exam and the insurer cannot turn you down. This is a good choice for those who are already in a poor state of health and preparing for their demise.

6. Group Life Insurance

This is one type of life insurance that can be purchased as a group. It is most common in workplaces where it is often a part of the perks that employers extend to the workforce. It often does not come with an extra cost to the employee. Nonetheless, take note that the coverage is often minimal, and hence, it is best if you supplement it with another life insurance.

7. Credit Life Insurance

If you take out a loan, you can be offered credit life insurance. The premiums can often form part of the loan payments. The payout with this life insurance is not directed to the family. Instead, it will go to the lender to cover any amount that you will no longer be able to repay. This is a good option for those who do not want to leave their family with financial obligations.

Think About Your Credit Score

Life insurance providers are using various metrics in the underwriting process. Among others, one that they will use is your credit score. Although, a credit-based insurance score is different from your regular credit score. Nonetheless, it is still a reflection of your financial health and history, which makes it a factor that can affect the decision of insurers.

Having a bad credit score can be a cause of concern. Some insurers might not approve your policy or can raise your premiums. So, before applying for life insurance, review your credit score. If there are errors, contact the credit reporting bureau and correct the details immediately. Working with a credit repair company can also be an option.

Compare Your Options

It is tempting to sign-up with the first insurer that you find or talk to. Most people do not have the luxury of time to thoroughly evaluate their choices. However, signing up for life insurance is a major decision. The premiums can be costly, so make sure you are maximizing the benefits.

One of the best things to do is to compare life insurance quotes online. Some websites will let you input specific details and provide you with recommendations on potential insurers. This can be a lifesaver since you do not need to talk to each company. Instead, you will be presented with a summary of what to expect from each insurance including the premiums and benefits.

Assess Your Finances

When looking for life insurance suitable for your needs, an assessment of your financial situation is a must. Evaluating your financial standing will give you an idea about how much disposable income can go to your insurance. You might also be saving for an emergency fund, repaying student loans and debts, or saving up for retirement. Figure out how much more of your money can go to life insurance.

Remember, life insurance is a long-term commitment depending on the terms of the policy. It can be for a fixed term or a lifetime, so make sure that you have the money to pay for it.

Factor In Your Lifestyle

Your lifestyle or habits is another factor that affects life insurance costs. This could affect your premium. For instance, if you smoke, you should look for life insurance for smokers. Most companies will raise your premium because your health is at risk. Nonetheless, some insurers are known for offering good rates even for smokers. Some might not even require a medical exam, but the coverage might be limited.

Aside from smoking, drinking and obesity will also be considered. More so, the nature of your job is also an important factor. If you are in a hazardous job, your premium can increase. Even those who often partake in high-risk hobbies can have higher life insurance rates.

Consider the Coverage that you Need

Aside from assessing your finances, you must take time as well to consider the coverage that you need. This will help you determine the right face value of the insurance that you should get. There is no generally accepted formula to help you determine this. Instead, you must look at different factors, consider your goals, and think about the needs of those you will leave behind.

Financial experts recommend that you get coverage that is 10 to 15 times your annual income. Nonetheless, this is not an absolute rule. It can be higher or lower depending on individual circumstances. Among others, the most significant factor that will come into play is your income, as such will decide how much of your money can go to life insurance.

You can also compute the coverage that you need based on the number of years before retirement. The closer you are to retirement, the higher the premiums should be. If you are still young, you can enjoy lower premiums because you will have a longer time to accumulate.

There is also a methodology known as DIME (Debt, Income, Mortgage, Education) that you can use for determining the right coverage for life insurance. To compute, you need to add your current debts, annual income multiplied by the years your dependent will be living off it, mortgage balance, and costs of education of dependents. The sum can give you an idea of the base amount of the right life insurance for tour needs.

Here are some of the most important considerations to help you figure out the coverage that you need:

  • Current income
  • Years of income you want to provide
  • Financial status of your spouse
  • Number of children that you have
  • Financial health of your family members
  • Outstanding debts
  • Current savings and investments

In Closing

How to Find a Life Insurance Policy

Finding life insurance is confusing. The choices are plenty, but not all insurers and policies are the same. To find the one most suitable for your needs, start by being familiar with the types of insurance available, including their benefits. Consider your financial situation and compute the coverage that you need. Compare options to find the right policy.

Nabeel Ahmad

Nabeel Ahmad

Nabeel Ahmad is a serial entrepreneur who has founded multiple successful businesses in the fields of marketing, software development, design, e-commerce, and more. He is the founder and CEO of Vertabyte, a full-service digital media agency that partners with enterprise-level companies, many of which have million-dollar valuations, and helps them achieve their business goals.

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