Life Insurance 101

Finding the right life insurance policy can be a daunting task, especially if you have never looked into life insurance before. An insurance agent will be the most interested in selling you a policy that pays a higher commission. That policy may or may not be the policy that would provide you with the best coverage based on your unique needs. It is a good idea to learn as much as you can about life insurance before you begin shopping so you have a better understanding of what you need.

Whole Life Insurance

One of the two types of life insurance available is whole life insurance. This type of policy provides coverage until you die, no matter how young, old, or healthy you are. Whole life policies are generally far more expensive than other options, but they are also more lucrative for agents who live on the commissions they earn. When you first talk to an agent, there is a good chance you will hear a pitch for a whole life policy first. In most cases, a whole life policy offers more insurance than any person really needs. Be sure you understand all of the costs involved before you commit.

Term Life Insurance

The other type of life insurance is called “term life.” This kind of policy is established for a specific number of years before it expires. The most common term life policies cover 10 to 15 years, but life insurance agencies have begun offering longer terms up to 30 years. A term life insurance policy is usually much more affordable than a whole life policy because it covers a specific amount of time. There is not as much guesswork with a term policy because it is not open-ended. When you shop for a term life policy, know that longer terms are generally more expensive than shorter terms. That is because the company takes on a higher risk that your dependents will file a claim.

How Much Should you Buy?

Most economic experts recommend that individuals who provide the sole support for their spouses or children should purchase enough life insurance to cover between 5 and 7 years of salary. Your case may not be typical, however. The idea is to establish an amount of coverage to make up for at least 5 years of your dependents living without your salary. If your spouse works, or your children are expected to go out on their own soon, you may not need to purchase an expensive policy. The best way to figure out how much insurance you need is to sit down and add up all of the expenses that you cover in a regular year. Use that number to project the financial needs of your family if you were unable to work, and use that projection to establish your insurance needs.

Choosing the Right Term Length

Since shorter terms are less expensive, it is a good idea to target your term length to meet your realistic needs. Your life insurance policy is a safety net for your dependents if you should no longer be able to provide for them. Your dependents will not rely on your income for the rest of your lives, however. It makes sense to purchase a term life policy that expires the year that your children are expected to move away from home. The farther away from that date you are, the more uncertain you should be about the specific date. Give yourself a few years wiggle room if your children are young right now. You could choose to purchase a policy that expires the year you expect to retire from your current job. The right term length depends on the impact of your salary on your dependents, which can change dramatically at times.

Why Agents Prefer to Sell Whole Life Policies

Most life insurance agents rely on commissions as their salaries. This can make them feel pressured to sell the types of policies that make the most money. Unfortunately, the best policy for them may not be the best policy for you. If you are dealing with an insurance agent who constantly tries to guide you toward a certain policy, remember that the suggestion may have more to do with the agent’s bank account and less to do with your financial needs.

Shopping Online

The internet has made it possible for anyone to do detailed research into life insurance policies from the comfort of their own home. You can log into a website that provides life insurance quotes and request several different reports from different agencies through one simple form. Shopping for quotes online is much faster than calling insurance agencies one by one. You also receive reports from the agencies that you can compare side by side so that it is clear which companies offer which services at which prices.

Buy when you’re Young

If possible, try to purchase your life insurance policy while you are still young. Insurance costs can become incredibly expensive for older individuals, especially if they smoke or are in poor health. You can find the best rates if you purchase your insurance policy during your 20s or 30s rather than waiting until you are middle aged. Your health also plays a large part in your insurance costs. Healthier people who do not smoke and are young will pay a fraction of the insurance costs that someone older would pay. The only exception to this rule is if you work in a high-risk career, like law enforcement or fire fighting.

Compare Policies from Different Companies

The difference between prices from one insurance company to the next can be amazing. Make sure you look at price quotes from at least three different insurance companies before you commit to a policy. Every company looks at different factors and creates prices depending on different risk assessments, so their prices are usually unrelated. If you purchase your life insurance from the first company you find, you may pay much more than you would pay for the same type of coverage from a different company.