Buying a life insurance policy is a very big deal. It’s perhaps one of the biggest financial decisions you’ll make in your lifetime. It is important to do some research to make sure you have the right policy to cover the expenses you need.
Weeding through the jargon and complex fine print of the insurance industry can be challenging. To make things easier, here are nine key aspects of life insurance that you’ll want to understand before taking out a policy. Even if you’ve already taken out a policy, these tips can help you understand your coverage and provide clarity should you ever decide to change providers or update your policy.
1. Be Ready to Answer Personal Health Questions
Most insurers will require you to answer some detailed questions about your health if you apply for life insurance. Agents need this information to determine the level of risk you pose as an insured person, and to determine how to price your policy premiums, as well as what type of policy and coverage to offer you.
Remember, if you are not completely honest with the insurer on your application, you could lose your policy when they find out, or they could refuse to pay out any claims. It is very important, to be honest on your application.
2. Consider Premium Affordability
When you are evaluating competing insurance policies and providers, one key thing to ask yourself is whether you can afford the initial policy premiums. You will want to make sure this is something you can consistently afford without stretching your budget too much. The policy could go up over time, too, so it is important to consider whether you can afford a slightly more expensive premium.
3. Understand the Renewal Policy
If you have a term life insurance policy, you will want to look at the renewal terms. It is usually possible to renew a term policy but keep in mind that your premiums might increase. Before committing to a renewal, ask your insurance agent about the impact it will have on your future policy premiums.
4. Read the Fine Print
Once you receive your policy documentation, sit down, and take the time to read through the whole thing in detail. A full understanding will let you get the most out of your policy and clear up any misunderstandings or false assumptions.
You’ll want to know whether your premiums or benefits will change from year to year. You’ll also want to understand how quickly benefits accumulate, and how much they will increase over time. Remember, if you have any questions after reading through the details, don’t hesitate to call your agent to ask them for answers. It’s their job, after all!
5. Check State Licensing
License information will most likely be available on the insurer’s website, but if it isn’t, you can get it from your state’s insurance department. It is important to verify if your insurer has a good reputation and will provide you with accurate data and services.
6. Shop Around
Your family and friends may have experiences with various life insurance companies. Feel free to ask them for recommendations! Perhaps the most important thing on this list is to remember to comparison shop when selecting a provider and a policy. You’ll want to use online resources to compare various insurance providers, as well as the individual policy options each provider offers. Shopping by price isn’t always the best idea. You do get what you pay for, and you’ll want to work with an insurer you can trust to provide excellent customer service and reliable benefit payouts in the event of a claim.
7. Know About Riders
You don’t need to accept an insurance policy that is offered to you at face value. You can request changes in coverage and benefits. Most policy providers have purchase options and riders that can be added to a policy at additional cost. For example, you might be able to request a rider that allows you to access your policy’s benefits before you die or use the benefits to pay for long term care. These sorts of riders can make a big difference in the amount of value you get out of your life insurance policy.
8. Factor in Expenses
You will want your insurance to cover your primary income but also think about things like mortgage payments, tuition bills, burial costs, estate taxes, and other things that could put a financial strain on your loved ones in the event of your passing. Additional coverage may cost more up front but be well worth the investment.
9. Check Requirements to Insure Others
Believe it or not, you can buy life insurance for someone else, but you will need to meet some specific requirements first. You will need to prove that you are in some way dependent on that person and that you would suffer financially in the event of their death. Employers frequently take out life insurance policies on their employees for this reason, though the practice is controversial. You can decide if this is a good idea for you but be sure to consult an expert if you have questions about it.
You will also likely need to get the insured person’s written permission to take out the policy on them. The insurance company may ask for the insured person’s medical history, and they will need to sign a consent form.
No matter how old you are or what stage of life you are in now, having a life insurance policy you understand can bring you peace of mind. Knowing your family and other people who depend on you will be taken care of if something happens to you will let you relax and concentrate on living your life in the moment.