The fact that “getting the right insurance” can be difficult to do if you don’t educate yourself on the process first.
Understand Your Needs Before You Shop For A Policy - Insurance, both life and disability, is a product that’s sold by agents, banks or online. These distributors generally earn exorbitant commissions from your purchase and this present a conflict of interest.
You have to make sure you at least have an idea of what kind of policy you actually need before you shop around for one. Have too much insurance and are paying more than they need to for their policy. Have the wrong insurance for their situation and would be better suited with a different product
Many have no insurance at all, even when they need it, because the process for buying the right policy can be confusing to navigate on your own. The right insurance policies for you will be ones that, in the case of life insurance, protect anyone who relies on all or part of your income from a financial hardship if you were to pass away and could no longer financially support them. And for disability, the right policy is one that protects against the risk of you losing the ability to earn an income during your working years.
General Considerations For Determining Your Need For Life Insurance - Very generally stated, you need some amount of life insurance if someone who financially depends on you would face a financial hardship if you passed away. So if you’re single and no one depends on you financially? Then life insurance might not make sense.
However, some kind of need-for-coverage almost always applies if you have minor children; it will usually apply if you’re married and share finances, especially major debts (or are in a committed, long-term partnership in a dual-income household).
Even if you don’t have kids but you and your significant other both work and earn incomes - your spouse be exposed with paying mortgage on your house or maintain the current lifestyle without the financial support your income creates if you passed away. It might be worth looking into life insurance so neither one of you would be left in a place were you could not handle your financial responsibilities without the other’s support.
Rules Of Thumb For Coverage Amounts - That should help you think through whether or not you’re someone who has a need for life insurance — and when it comes to determining how much, a baseline rule of thumb is to say your benefit amount should be ten times your current income.
So if you earn $100,000, you may need coverage worth $1,000,000. There’s a lot of nuance here and no one, single “best” answer for what’s right for everyone. But this should get you thinking in a good direction in terms of how much you might need for coverage to adequately protect yourself.
Make Sure You Get the Right Insurance Type - Type of insurance is an important consideration as well. Most of the time, for most people, term life insurance is a good choice. There are other options out there, including whole, permanent, universal, and others — but for most people, a term life insurance policy will be the most appropriate match for their needs.
Term allows you to carry the insurance policy for a specific period of time, like 20 or 30 years. Your policy automatically drops off at the end of the term, and you don’t have to keep paying premiums after that.
There are circumstances when other life insurance products, like whole or universal life, do make sense. These aren’t inherently bad options; they just don’t make sense for most people’s protection needs. Unless you’re dealing with an exceptional family circumstance, term life is probably a safe bet that’s affordable and that won’t require you to pay into the policy forever.
Thinking Through Your Need for Disability Insurance - In addition to life insurance, you need some kind of disability insurance if you need the money you earn from an income to pay your living expenses and afford important goals.
That’s going to apply to just about all of us. Because if we have 10, 20, or 30 years’ worth of our careers ahead of us, that means we’re risking 10, 20, or 30 years of lost income if something happened where we were unable to work. Disability insurance, should you need it, would pay out a monthly benefit to ensure you maintained an income stream, even if you couldn’t earn a paycheck.
Long-term disability is the more important policy, because that’s covering you for years, even decades, rather than just a few months. Also consider how long you need benefits. You may not need them from now until age 65; covering yourself until 55 or even 50 could be sufficient.
Finally, think through the riders you may need or want. Some may come free with your policy; others might be an additional cost. A really important one that many people forget about, but most people could benefit from, is a cost of living adjustment rider.
This means your benefit automatically adjusts over time, to ensure the amount that would be paid out to you keeps up with inflation.
The more you understand, the better equipped you’ll be to make great decisions about what products best fit your needs.
No comments:
Post a Comment