Purchasing Insurance

Most people know they need life insurance, and yet many still haven’t purchased a policy. Choosing the right policy can be confusing and leads many to putting off the decision. For anyone who is shopping for life insurance, choosing the right type and the right amount of insurance is often a difficult decision.

Life insurance isn’t as complex as it seems on the surface; there are a few basic types of policies, and there are simple ways to calculate the required amount.  Don’t put off buying a life insurance policy because you aren’t sure what to buy, take the time to understand the basics and the choice will become easier.

Types of Life Insurance
There basic types of life insurance policy: term, wholelife, endowment, Unit Link or universal. Term life insurance is purchased for a certain term – a length of time for which the company agrees to provide coverage. Term policies are typically available in a range of lengths from 5 years up to 30 years. Universal and whole life insurance policies are the two most common forms of permanent life insurance. They are very similar, but whole life is more rigid and universal has more flexibility. With a whole life policy the premiums and benefit remain the same over time, while these can be flexible in a universal policy. Universal policies allow you to adjust premium payments and death benefits over time, and have more options than whole policies.

How to choose between term and permanent life insurance?
Here are a few simple considerations. You may want to choose term life insurance if:

• The need is for a large amount of coverage for a specific period of time
• The need is for affordable life insurance
• The policy is meant to bolster an existing permanent policy

Term life insurance carries lower premiums because it has an end date, and insurers are taking a lower risk. Whole, or universal life, lasts until death or the age of 99 at which point it matures. Because the risk of death during the policy term is much higher, rates are higher. You may want to choose permanent life insurance when:

• The person being insured is young and healthy and can lock in a low rate
• The need is for a policy that does not expire
• A smaller benefit amount is acceptable

How Much Coverage to Get
The question of how much coverage any one person needs is a complex one. The need may very well be for a combination of the two; a permanent policy for final expenses and to last until death, and a larger amount of coverage for a specific time period, such as when young children are at home.

A life insurance calculator is the easiest way to determine how much coverage is actually needed. There are a number of free calculators online. A good rule of thumb is to cover five years of income as well as final expenses and any needed care for dependants.

When it comes to the amount of  life insurance, more is usually better, but the cost of the premiums can be difficult to manage. This is where a cheaper term policy combined with a smaller permanent policy can be a good choice.

When to Buy
It’s always best to buy life insurance as young as possible. This usually means lower rates because the person being insured is young and healthy. Although the need for the benefits may seem far off, even young people without dependants can leave debts and final expenses to pay for.

There are policies designed for older people to obtain coverage. Don’t despair if shopping later in life; there are affordable options available.