Investing in life insurance may be one of the best decisions you make for your family. Life insurance pays your named beneficiary a specific sum of money at the time of your death (if the policy is active). Your loved ones can use those funds for anything they may need and can maintain their lifestyle if you're not there to support them.
Choosing the right policy, however, can be difficult, since there are so many options out there. These questions can give you the insight you need to make the right decision:
#1: What Type of Life Insurance Is Best for Me?Numerous types exist, but there are two specific kinds of insurance you should focus on first:
Term LifeTerm life insurance is one of the most common options. It remains in place for a specific length of time, though you may be able to renew later. Term is ideal if you want to protect your dependents, such as your child, or to pay off debt you have now, such as your mortgage.
Whole LifeWhole life insurance remains in place as long as you continue to make payments. It provides coverage throughout your lifetime, and is ideal for those who wish to fund an estate plan, cover grandchildren's education, or support a business. Some whole life insurance policies pay you during your lifetime as well.
#2: What Is Guaranteed?Permanent insurance (sometimes called whole life insurance) promises a payout at the time of death. However, you need to verify how much is guaranteed. Some policies focus on projections of worth based on the underlying investments. You also need to consider the amount that will pay out, no matter the changes in the market throughout your lifetime.
#3: What Type of Returns Can You Expect?For the first few years that you own a permanent life insurance policy, most of your premiums go to funding the policy, with little being invested. You need to find out what expectations you should have for your returns within five to ten years. There are few promises, of course, but you should have an idea of what others are earning.
#4: What Happens If You Become Disabled?Some life insurance policies include a disability rider, or, alternatively, you can purchase a disability insurance policy separately from your life insurance policy. If you become disabled while the policy is in place, you should find out what options exist for you. Some policies offer a waiver of your premium if you are deemed disabled. This allows the policy to remain in place even if you can't make the payment. You should also clarify what the insurer considers disabled – this can differ from carrier to carrier.
#5: What Happens as You Get Older?If you purchase a term life insurance policy, you're likely to have options to renew and extend the policy throughout your life, usually up to age 90. However, the costs rise quickly each time. Whole life insurance policies may allow you to lock in a lower cost for a longer period of time.
When considering life insurance policies, find a professional you trust who can carefully explain each of the options to you in detail. Sproutt's insurance advisors provide unbiased advice, since we're not affiliated with any insurance carrier. Gathering information, considering your goals for such policies, and then creating a plan that meets your needs, is always the right route to take.