One indication that you’ve become an adult is when you start to think about getting life insurance. If you have loved ones who depend on you, enrolling yourself for a policy is the most considerate & loving thing you can do for the ones you will leave behind.
But before you go ahead and sign up for cheap life insurance right away, arm yourself first with the necessary knowledge so you know what to look for and what to expect.
Defining Life Insurance
It’s an agreement between you and your preferred insurance company in which the latter agrees to give a specified amount of money to your beneficiaries upon your death.
This sum is called a “death benefit” and can only be payable on the condition that your premium payments are up to date. Basically, policies give you assurance and peace of mind in knowing that your loved ones will be financially protected after your demise.
There are two different kinds of policies you can sign up for—term and whole. Term life insurance covers you only for a stipulated period of time, such as in the cases of plans that only go on for about 20 or 30 years. Whole life policies, on the other hand, cover you for life—that is, as long as you pay your premiums regularly.
Who Needs It?
Anyone who’s the primary provider for your home or who has a significant amount of debts should seriously consider signing up for life insurance. However, keep in mind that by itself, insurance won’t cover all situations.
For instance, a standard policy won’t cover possible disability or future long-term medical care. However, you can purchase riders that can cover those scenarios at an additional cost.
How Much Coverage Do You Need?
There is no fixed amount that’s perfect for everyone when it comes to coverage for a life insurance policy. This is because the coverage you need might be different from what other people need.
Many financial experts, however, recommend purchasing a policy that’s about 10–15 times your annual income. The following are some of the important factors you’ll need to consider when deciding on the amount of coverage you’ll sign up for.
- Debt – One purpose for insurance is to pay off any significant debts you might have, such as student loans, mortgages, credit card loans, and even car loans. Your policy should have enough coverage to pay off all your debts in full.
- Income Replacement – If you’re the major provider of your family and the possible loss of your income can hurt them financially if ever something happens to you, insurance can also serve to replace your income. Your policy payout should be large enough to replace how much you’re bringing in each year, with a little extra for inflation.
When shopping around for a life insurance policy, it’s important that you determine beforehand what kind you need and exactly how much coverage you should get. To do this, you’d need to look at your own situation as well as that of your family.