Want to buy a life insurance policy but unsure of where to begin? This guide is for! Here’s everything you’ve got to know about life insurance.
Types of Life Insurance
There are two main categories: term and permanent. But they’re then further divided into subcategories.
Term Life Insurance: Term life insurance provides a predetermined amount of coverage for a fixed term and usually comes with a fixed monthly or annual payment.
This type only offers a death benefit so if you die during the stated term with paid-up premiums, your beneficiaries will get the face value of the death benefit.
Permanent Life Insurance: The way this differs from term life insurance is that permanent life insurance doesn’t just offer a death benefit; it’s also a kind of savings or investing vehicle. This way, permanent life insurance is both more expensive and more complicated.
Which is Best?
Deciding between both types of life insurance is simple for some people. For an average consumer, term life insurance is always the best bet.
There are still times when permanent life insurance makes more sense. If you know you’ll need to financially provide for any children or your spouse for a lifetime, permanent life insurance can easily give you more peace of mind. Alternatively, if your estate planner recommends permanent life insurance as a way to rescue your large estate from taxes, it can be a good option to consider, although most third-party financial advisers prefer that you choose term life insurance over permanent.
How Much Coverage?
One of the biggest challenges of shopping for life insurance is deciding exactly how much coverage you will actually need.
The main goal for life insurance is to cover the cost of your end-of-life expenses, pay off debts, and replace your income if you have any dependents.
So, what factors matter when it comes to your life insurance amount? Here are a few:
– Marital status
– Parental status
– Earned income
– Potential future income
– Debts
– Rate of pay off
– Estimated end-of-life costs
– Additional financial goals
Why People Buy Life Insurance
Some of the common reasons why people purchase life insurance are:
– For end-of-life and funeral expenses coverage
– Helping their family pay off debts, including mortgages
– Helping their family maintain their lifestyle in case of an unfortunate eventuality
– Funding their children’s college education
– Funding for their business to continue
– Leaving money behind for any heirs or charities
