Having life insurance can help protect your loved ones if something happens to you. When buying life insurance, it’s essential to consider your family goals and financial priorities.
Then, assess your budget and compare free life insurance quotes to determine the best policy for you.
Factors to consider when choosing the best life insurance policy
Four critical factors are to consider: coverage amount, term length, premium payments and riders.
Coverage Amount
Choosing the best life insurance policy is integral to planning for your family’s financial future. But the amount of coverage you need depends on various factors, including your age, health, and financial goals. A fee-only financial planner, who does not sell insurance, can help you determine how much coverage you need and which type of policy would be most effective for your family’s needs.
Some of the most common approaches to determining how much life insurance you need involve considering debts, income, final expenses owed, and any assets your family could access. These formulas, often called DIME (debt, income, mortgage, and education), are meant to give you a minimum amount of coverage to cover your family’s expenses in the event of your death.
A life insurance calculator is a better way to calculate the right amount of coverage. This tool will ask you about your estimated burial expenses, the number of income-earning years you want to replace for your beneficiaries, any one-time expenses for your survivors (like college tuition or a gift to charity), and the value of your current investments and savings accounts.
The results of the life insurance calculator will help you with a life insurance comparison from different companies. You can also choose a term length and coverage amount that will fit your needs.
Term Length
Term life insurance policies offer a set amount of coverage over a specific number of years. Common term lengths include 10, 15, 20, and 30 years. However, the best policy length depends on your needs and financial situation.
Generally speaking, you want to choose a policy length that provides your family with the maximum level of protection possible while providing the lowest premium payments. A longer-term length tends to cost more because the insurance company must invest more money in the risk.
Consider the time you’ll need coverage, which will help you choose the right policy length. For example, do you need a policy for just a few years until your children finish school or your mortgage is paid off? Or do you want a policy to provide your family with a financial safety net for decades?
A 20-year term is typically the most popular choice for Haven Term policyholders. It gives them time to cover their kids until they leave the house and to pay off their mortgage if necessary. In addition, a 20-year term length costs less than a 30-year term length policy.
If you’re young and healthy, a 30-year term may be your best option. A 30-year term can provide you with a safety net as you build your life while allowing you to pay a low premium and lock in the same rate for the rest of your life.
Premium Payments
Premiums are the money you pay to the insurance company to receive your coverage. They are typically paid monthly, quarterly, semi-annually, or annually.
The amount of the premium you pay depends on your age, gender, and health status. Healthy people generally get better rates than unhealthy ones. In addition, insurers may look at your weight, blood pressure, and cholesterol levels. Those with a history of high-risk behaviour, like drug use or frequent smoking, might face higher premiums.
A term life policy usually costs less than a whole life policy because it offers coverage for a limited time. However, your premiums might increase substantially if you become sick or critically ill during the term.
Another option is a universal life insurance policy, which has a cash value similar to whole-life policies but allows you to customize the death benefit. It is a popular choice for individuals who want flexible premiums and can adjust their coverage as their circumstances change.
Riders
One way to make your life insurance policy more tailored to your needs is by adding additional rider features. Riders offer flexibility and customization but also come with an additional cost.
Some riders are relatively inexpensive, while others require a higher premium. Determining which riders you need and how much value they would add to your life insurance policy before purchasing them is essential.
For example, if you have children and want to insure them, consider adding a child term rider to your policy. This rider will provide life insurance benefits for natural-born children, stepchildren and legally adopted children without needing a medical exam.
Another common rider is the living benefit rider. This feature allows you to access your cash value and death benefit before you die in the case of a terminal illness. It can be a good option for people nearing retirement age, as they may not have a large cash cushion.
In addition, you can get a return of premium rider that refunds the amount you paid on your policy over its lifespan, tax-free. This rider is a good choice for people who struggle to save money for their retirement or are concerned about not having enough insurance in the event of their death.
You can also use a rider to change the structure of your life insurance policy, such as by lowering the death benefit or allowing you to choose your beneficiaries. These riders are usually available on term and permanent policies but can be tailored to your unique circumstances. A qualified life insurance agent can help you decide which of these riders is right for you.