If you’re considering purchasing your very first life insurance policy, you’re probably feeling overwhelmed with information, and more than a little confused. Here are some tips for life insurance “newbies.”
- Be certain you actually need life insurance. It’s true that most people are likely to need life insurance at some time during their lives, but that doesn’t mean you should purchase a policy without understanding why you need it. Typically, life insurance provides financial security for your family in the event that you die or become permanently disabled, but it can also help pay off a mortgage, provide college tuition for your children, or provide the funds for your retirement. If you’re an unmarried person with no kids who doesn’t own a home, then, life insurance may not really be necessary for you at this time. On the other hand, the younger you are when you purchase your first policy, the less expensive it will be, so a small starter-policy may be in order.
- Know how much you need. Most people purchase either too much life insurance or not enough. There are many calculators on the web that will give you an estimate of what you need, but a quick-and-dirty estimate, especially if you’re relatively young, is to purchase a life insurance policy that will provide a death benefit (what your heirs will receive after you die) equal to eight times your annual salary.
- Choose the best policy for your situation. If you’re young a universal or whole life policy may be the best option, especially since they also offer the ability to use benefits for college tuition. Slightly older people may wish to consider term life insurance, instead.
- Educate yourself. Insurance terminology can be confusing, so spend some time on the ‘net learning some common terminology, for example:
- Premium: The payment you make to keep your life insurance policy in force.
- Death benefit: The amount your heirs will receive after you die.
- Cash value: The amount of money that accumulates within the policy – often, you can “cash in” some kinds of life insurance policies to receive this money.
- Shop online. Whether you’re researching types of products, checking the strength and background of possible insurance companies, or asking for specific rate quotes using the internet will get you the best rates with the least amount of work.
- Ask questions. If something seems wrong, or too good to be true, or if you just have questions that aren’t answered on a company web page, call customer service. You should never commit to a life insurance policy that you don’t feel comfortable with.