Getting a life insurance policy is one of the most important decisions you will make in your life. It will not only affect you but also your beneficiaries for years after your death.
Buying life insurance is a lifelong financial commitment that will have far-reaching consequences. Therefore, you should know as much about the subject as you can before getting one.
There are many factors to consider before getting a life insurance policy. Some are more important than others but they will all affect your decision.
The following are the most vital factors to consider:
The Duration of Coverage
The duration for which a life insurance policy is designed to last is called a term life. On the other hand, most life insurance policies are designed to last a lifetime which means until the death of the policyholder.
You should seriously consider how long you would like the policy to last. You may want it to last as long as your children cannot support themselves or until your mortgage is paid off. However, taking a life insurance policy is usually the best decision.
The duration of your coverage will be closely linked to your will and other instructions you leave behind after death. The good news is that you can end or sell the policy if you no longer need it or want to take out a new one.
Types of Life Insurance Policies
There are two main types of life insurance policies as alluded to above: those that last a lifetime and those that last for a specific term. The former can also be referred to as permanent life insurance.
Permanent life insurance policies can be further categorized into whole life insurance and universal life insurance. Whole life insurance has a definite premium and is valid as long as you keep paying the premiums.
Universal life insurance offers various investment opportunities. The premiums you pay will be dependent on how you decide to manage your investment portfolio and will be adjusted accordingly.
You don’t have to choose only one type of insurance policy but can utilize a combination.
The Cost of the Policy
One of the most crucial factors to consider before getting your life insurance policy is how much it will cost. Over the cost of a lifetime or decades, the cost can amount to a pretty significant sum.
There are several methods through which you can go about calculating your life insurance policy cost. You can either use the Qlife Settlements calculator or the ‘DIME’ method which stands for debt, income replacement, mortality costs, and education. The life insurance cost should be directly related to your ability to pay the premiums as it is an important factor affecting the eventual payout. The financial needs of your beneficiaries should be the key to calculating what you are willing to pay for life insurance.
We have all seen cases of relatives fighting over estates when a loved one dies. If you don’t want that to happen to your life insurance policy, you should ensure that you select the beneficiaries of the policy before you go and get one.
You should think of those who would benefit most from a generous life insurance policy. On the other hand, you should also think about who would be most likely to manage the funds well after you are gone. For that reason, naming a minor as the beneficiary would be ill-advised.
You should know that who you name as a beneficiary will have tax implications as it pertains to your estate. There are very clear laws that would otherwise leave your beneficiary in turmoil.
You may also choose the proceeds of your life insurance policy to go to a business or a charity in which case you will have to leave clear instructions. You should ensure that you explore and choose the best option.
Objectives of the Policy
A life insurance policy is a form of a financial instrument or asset and can achieve other objectives other than benefitting your beneficiaries after death. Before taking out a life insurance policy, you should seriously consider which objectives you want the policy to achieve.
Permanent life insurance policies in particular have a cash value and can even be bought and sold in a secondary market. Moreover, their cash value increases over time which can make for a substantial investment.
You can also use a permanent life insurance policy as a means for retirement savings. You must know how you can utilize your life insurance policy as part of your investment portfolio.
There’s a great deal of things to consider before taking out an insurance policy especially considering that it is a lifetime investment. If you can consider the factors above, you should have solid ground for a good life insurance policy. You should always learn how you can use the policy for financial gain including after your death.