Life insurance: The full breakdown
When choosing life insurance, you should consider your life situation now and in the future and then ask yourself some questions.
- Life insurance exists to protect the people who normally depend on your income. Do you have any such people? Children, a spouse, or any other dependents? If no or not yet, you probably don't need life insurance. If you do, think about how much money they would need to survive, and for how long. Whatever cannot be covered with the wealth they'll inherit from you could be covered with life insurance. For many people, this is the reason why they buy it. A general guideline is that you would need life insurance coverage of between 5 and 10 times your yearly salary.
When choosing a life insurance policy, you'll be confronted with the question of term versus whole. The difference is this. Term is pure insurance, meaning that it pays a death benefit to your dependents. It's fairly cheap if you buy it young, and the premiums eventually rise in price as you age. Whole is more expensive and is a death benefit plus cash value, which comes from how it's invested by the insurance company. The premiums stay level over the years that you pay them, because they're averaged.
Life insurance premiums vary a lot. Ultimately, they're based on actuarial tables that project your life expectancy. Your risk as a covered person is also taken into account. If you're high-risk-- meaning you smoke, are obese, or work in a dangerous field or have a dangerous hobby-- those risks will be factored into the premiums you pay. If you want to pay less for a policy but you're high-risk, you'll need to remove or lessen those risks.
Life insurance agents are trained to help you with your life insurance needs. They'll ask you questions about your financial life and goals and what you might need in a policy. You should ask their professional qualifications, accreditations, experience, how they're paid, and their industry specialties. Referrals from family, friends, co-workers, and even your CPA or lawyer are great ways to find an agent. Consider talking with several agents before making a decision.
Also look at ratings, which are an indicator of an insurer's ability to pay claims. High ratings mean that the company has enough assets and reserve money to continue paying claims. Stay financially fit, friends.