Oh great – a post about life insurance – doesn’t he know I’m not interested in reading about life insurance?
Is there anything people hate thinking about, talking about and paying for more than life insurance?
A necessary evil if you will.
It just feels like a waste – I mean what benefit do you receive from having it? Abolutely nothing – only your heirs get to see that.
At least if you need other forms of insurance you can realize something tangible like health or a fixed vehicle or something!
So, when you’re about to make the plunge and start looking at life insurance for the very first time or you are re-evaluating your current situation - answer these four questions before you pay that premium!
1. What’s the purpose of my life insurance
Are you serious? The purpose of my life insurance? Isn’t it to pay someone when I die?
What I mean by purpose of life insurance is what exactlly are you using it for. Here’s some examples:
- To provide my spouse with income for life
- To create funds for my children to go to college
- To pay off my mortgage
- To pay estate taxes and minimize the erosion of my estate
- To pay off other debt
- To bury me
As you can see there are multiple purposes for your life insurance and you may have more than one.
It’s vital to understand why you are buying the life insurance in the first place.
2. How much insurance do I currently have
You might have a million dollars through your group insurance at work and think that you’re good to go.
Wait! Not so fast – think about it for a second. If that’s the only insurance you have what about if you lost your job, quit or retired? What happens to all that insurance?
In most cases it disappears – so do you really have that coverage?
Yes and no.
You do have coverage, but it’s temporary. So you need to evaluate how much you have and what kind of insurance you have as well – term, permament or group.
3. How much life insurance do I need
There are countless calculator’s on the web you can use to determine your life insurance needs.
The amount of insurance you need will vary depending upon what your purpose for the insurance is.
If you are trying to provide for your spouse for the next 20 years then you’ll probably need more than someone only worried about having enough to bury themselves and pay off some outstanding liabilities.
There’s no hard or fast rule regarding how much you need, but here’s a handy guide from LIFE (Life and Health Insurance Foundation for Education):
4. What kind of life insurance policy should I buy?
Yes, Suze Orman will tell you to only by term insurance. Others will tell you to only buy permanent (also known as whole life insurance, universal life or variable universal life insurance).
But what kind do you really need?
The answer is it depends. It depends on the purpose for your insurance and how long you want it to last you.
If you’re concerned about using life insurance for estate planning purposes you probably need something more than term insurance.
If you’re only concerned about protecting your life for 20 years until the kids go off to college then a term product is proably right for you.
Don’t let people tell you that only one type of insurance is right for everyone. There is no one size fits all!
The bottom line with life insurance
Identify the purpose of the life insurance, do your homework, shop around and do what’s best for your situation.
What about you? What other questions should you ask before you buy life insurance?