Life insurance is one of those major adult decisions; if you’ve got a spouse or a family, it’s vital that they’re protected in the event that something happens to you. Because purchasing life insurance is a huge financial decision, the task must be handled with care. Before you go bungling into the first policy that sounds remotely attractive, consider the following and then make your choice.
- Think about how long you need coverage for: Life insurance is designed to do one of two things: provide coverage for a certain length of time (called term life) or for an entire lifetime. The former you might choose to cover yourself while your kids are growing up, or during the length of your mortgage, so your beneficiary doesn’t end up with immense debt; the latter is preferred if you’re trying to cover burial costs or income replacement for a spouse.
- Calculate how much life insurance you’ll need: This requires you to determine the costs you’ll leave behind. Use the DIME method.
- Debt: Are you currently paying off a mortgage, private student loans, car loans, or any credit cards? Homeownership rates may be down (at 64.2% in 2017), but any amount of debt can place a lot of pressure on loved ones.
- Income replacement: As hard as it may be, consider the life expectancy of your spouse, dependents, and anyone who relies on your income. Are you interested in replacing your income for the rest of their lives?
- Mortality: This refers to burial wishes and costs.
- Education: Do you want to fund education expenses for dependents, or childcare costs? If you have kids in daycare, do you want to pay for their remaining years?
- Consider other objectives: Some policies can be used as savings. These lifelong policies have cash value that increases over time, and also contain a death benefit (or face amount) which is paid at the time of death while the cash value continues to grow.
It can be easy to assume that life insurance falls under the same categories as health insurance, business insurance, or car insurance. While they are all certainly important financial commitments, life insurance policies only come into play in dire situations. There are a number of life insurance companies that will be able to help you narrow down your choices to find the one that fits best for you and your family. Don’t take the risk; reach out to multiple life insurance companies today to get signed up.