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10 Things to Know Before Purchasing Life Insurance

Written by prositesfinancialApr 16 • 4 minute read

purchasing life insurance

Purchasing life insurance can provide some satisfying peace of mind and protection for your loved ones and dependents. It can also provide some key financial benefits. Getting the most out of your life insurance policy depends on knowing some key things about both the policy itself and how life insurance works. It also depends on getting the right policy in the first place. Here are ten things you should know about life insurance before purchasing a policy (and after!).

1. If an Insurer Declines Your Application, Look Elsewhere

Life insurance is a competitive industry, and so if you apply with one company and are denied coverage, simply look somewhere else. If that company wouldn’t insure you, there’s a good chance one of their competitors will.

2. Make Sure You Need Insurance Before Buying It

This may go without saying, but it’s important to think about your situation and needs to determine whether you need life insurance or not. For instance, if you have no dependents and are looking to insure yourself, you probably don’t need this type of insurance. You will, however, want to make sure that you have enough money to cover your final expenses.

3. Your Beneficiary Doesn’t Need To Be a Dependent

You could opt to have an insurance policy with a non-dependent beneficiary. For instance, you could have a family member or loved one who is not dependent on you receive the benefits of your policy in the event of your death. Some people take out life insurance policies and make the beneficiary a non-profit charity of their choice or their local church. Employers even take out life insurance policies on their employees fairly often, with the employer as the beneficiary. So keep in mind that the beneficiary can be almost anyone, and they need not be someone who lives with and is dependent on you financially.

4. Know the Difference Between Term And Whole Life Insurance

There are two main types of life insurance. The first is term life insurance. This type of insurance is usually the more affordable of the two options. It provides coverage for a set number of years, after which the policy must be renewed or canceled. The downside to this form of insurance is that it lacks a cash value that can be borrowed from or withdrawn.

The other type is whole life insurance, which does have a cash value that can be withdrawn or borrowed from, but typically comes with a higher monthly premium cost. Whole life insurance remains in effect until the death of the insured, as long as the premiums are paid.

5. Know Which Sources Of Income You’d Need To Replace With Insurance

The most common purpose of life insurance is to replace the income you generate in the event of your death. Think about what you want to restore with the policy. You could choose to cover things like the remainder of a mortgage or someone’s college education or moving expenses as well. It’s up to you, and you can decide how much coverage you want when you take out the policy.

6. Don’t Think Of Life Insurance as an Investment

Life insurance is just what the name suggests: insurance. It is not an investment or a replacement for investments. You should still have investments in the form of a retirement account or brokerage account in addition to life insurance. While some types of life insurance do carry a cash value that can be withdrawn or borrowed against, it does not grow or produce income in the same way investments like stocks, bonds, and mutual funds or ETFs can.

7. Keep Your Documentation

Whenever your insurance policy provider sends you documents, be sure to hang onto them and store them in a safe place for future reference. If you get a receipt or a detailed policy document, you’ll want to save that so you can review it later if necessary. Don’t be afraid to ask for everything in writing, especially if promises are made. You’ll want documentation to prove any payments you provided to your agent, broker, or insurance company as well.

8. Review Your Policy Periodically

Be sure to review your policy every few years at least to make sure it still fits your needs and the needs of your loved ones. Circumstances change, people, move, jobs come and go, and inflation and economic changes occur. You’ll want to make sure the policy that you took out years ago is still up to the task of providing the security and peace of mind you need it to.

9. Call Your Agent If You Have Questions

If there is ever anything you are unsure about or if you have any questions, don’t hesitate to give your insurance agent a call. They are experts in their field and can answer any questions you might have. If they don’t have all the information at their disposal, they can certainly get it for you. It’s important to have a good relationship with your insurance provider and not be afraid to contact them when necessary. After all, you are the customer, and they are the service provider, so it’s okay to ask them to provide service.

10. Know What Your Policy Does And Doesn’t Cover

It’s important to understand what exactly your policy will cover and what it will not. For example, most policies will not cover death due to certain circumstances. Other exceptions may apply, so be sure to ask your insurance agent or just read the fine print to make sure you understand the details.

If you have any tips or suggestions that could prove useful to others who are looking to better understand their insurance policy or life insurance in general, feel free to share them in the comments below!

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