Life insurance policies are their own special breed. Unlike car or homeowners insurance policies, they don’t come up for renewal each year, so when you buy one, you’re typically making a long-term commitment of 10, 20 or even 30 years. That’s why it’s important to do your research before you buy life insurance, and that includes asking your insurance agent the right questions. Start with these five if you’re in the market for life insurance.
How will you determine the amount of insurance I need?
Although you may have heard different “rules of thumb” about how much life insurance you need — for example, 10 times your annual income — the death benefit that’s right for you is a very individual calculation.
How long should I have insurance in force?
Once you’ve zeroed in on a policy amount, the next step is to pick a policy type: permanent or term life insurance. Permanent policies provide coverage for your entire life, whereas term life policies last only for the term you buy, such as 20 years. Term life insurance is the less expensive option. And, often, consumers don’t need lifetime coverage.
What happens if I can’t pay premiums?
If you are buying a term life insurance policy, the answer is simple — if you stop paying, you’ll no longer have life insurance coverage. But if you’re leaning toward permanent life insurance, you may have payment options in the future, after the policy has built up cash value. It’s up to policyholders to understand how the process works and how much cash value they can use for premiums, Tilp adds.
How can I expect my policy to perform?
If you’re buying permanent life insurance, you might already know that your policy will have a cash value component that your company will invest for you. But unless the returns are guaranteed, the future value of your cash value is anyone’s guess.
Can we solve any other potential problems with these insurance policies?
If you buy permanent life insurance, you might be able to fill other needs with your policy, like long-term care insurance or retirement planning. Some retirees use withdrawals or loans from their cash value to supplement retirement income, although most advisors agree that it’s a strategy that’s best for only those who are already maxing out other methods of retirement savings.
You might also be able to stretch your life insurance benefits with riders. For example, an accelerated death benefits rider can cover long-term care medical needs by paying out a portion of your death benefit if you’re ill or injured. You could also consider a waiver of premium rider, which pays your premiums if you’re unable to work.
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