Category: Insight Tools
Buying life insurance can be intimidating, boring or downright scary. Buying life insurance is also one of the more important things you can do for your family. There are lots of guidelines about buying life insurance put out by the insurance companies. Sometimes it can be hard to sort through all the information about buying life insurance, and I hope to give you some tips to get you started.
Know what you need the life insurance to do for you. Do you need the money to finish paying debt? Put the kids through college? Finish raising the children? Allow the widowed spouse to retire from the work force? It can be emotional to think about and discuss and difficult to talk about, but you need to know why you are buying life insurance. For my husband and I, this is how it looked: I am a stay at home mom; we have two young children; we bought a home two years ago. We decided that at the minimum, I would need life insurance money to get reestablished in a career, and finish raising the children. He wants to be able to stay at home for one year and get himself and the girls settled before returning to his workforce. We kept these needs in mind while shopping for life insurance.
Term or whole life? Term life insurance is a basic insurance protection. You pay your premium for a previously decided amount of money, and upon your death, the insurance company pays that amount of money to your beneficiaries. Whole life insurance provides this benefit, but also builds up a cash value. Some of your premium payments go to provide this cash value. So in order to have the same size death benefit as the term life insurance policy, you would need to pay much larger premiums. An insurance agent can explain these policies in more detail, and there are many, many articles written by experts on this subject. I would suggest doing some research. In our case, we went with term life insurance. Our girls will be raised in approximately twenty years, so we bought the term policy for that length of time. You can always reassess your needs as life changes.
Look around you for options. There are ways to maximize your life insurance that you may not have noticed. Many employers offer life insurance policies at very, very low cost, and many will provide the equivalent of one year’s salary at no cost. Some of these policies are portable, meaning you can take them when you leave the company, and some are not. So it’s wise to consider your expected longevity at this particular company, or what the cost is for taking these life insurance policies out of the company. Your mortgage company may offer an insurance benefit that pays the mortgage off if one of the owners dies. Or if you are a member of a credit union, some of them also offer a life insurance policy for smaller amounts, such as $7,000 or $10,000 for very small premiums. We have one of those largely for burial and funeral payments.
Should you buy insurance on your children? Buying any life insurance is a very individual process and decision, and whether or not to insure your own children is even more so. Some parents buy whole life insurance policies (discussed above) when their children are born or very young as a “savings account” for them. If that is the intent, there are more profitable and easier ways to establish savings for your children. I would advise checking other options than life insurance for this purpose.
What about burial insurance? My mother passed away unexpectedly a couple of years ago, so I do know how this sudden expense can impact a family and its finances. Many people consider what is known as burial or “pre-need” insurance. This life insurance is sometimes required to be purchased in a lump sum. Sometimes payment plans are available, depending on what options you choose in this policy. Several states, concerned about potential abuse in burial insurance, have passed requirements on these policies. It’s wise to check what the requirements are in your state. I would consider all of your other life insurance options before purchasing a specific burial policy however. You do need to discuss your burial wishes and requirements with your spouse or some other family member, though. As discussed above, many times small life insurance policies are available for a small amount of money, and those can be used to pay for burial and funeral expenses.
Buying company life insurance is an easy way to make sure that all your employees are covered from any unfortunate happenings and this is also a good encouragement booster. This goes to show that as company’s head you value your employees.
Buying life insurance doesn’t need to be scary or intimidating. A good life insurance agent should present several options to you. I know it’s difficult to think of where yet another payment is coming from to pay for life insurance. We are a young family, too. But once again, look around. By comparison shopping, we found an insurance company that provided quality auto, home and life insurance for what auto and home insurance alone had cost us at another company.