1. Set Clear Goals For Your Policy
What is life insurance, really? It is a contract with an insurer who agrees to pay a death benefit of so much under certain stipulated conditions provided you pay the premium faithfully for the designated period of time. But within those basic parameters, there are huge differences in what this kind of insurance is “for.” Start off by writing down what you want your policy to “do.”
Here are some examples:
- Make up for lost income in the event of the bread winner’s early passing.
- Ensure the mortgage is paid off in full no matter what.
- Prevent your small business from folding should you pass away unexpectedly.
- Protect your kids’ future ability to go through college.
- Function as part of an overall estate planning strategy.
- Create, in effect, a tax hedge.
- Build cash value to borrow against in a pinch.
- Take care of burial and other final expenses.
2. Understand Life Insurance Types
There is near-endless variety in precise “types” of life insurance policies. But we can class most policy-types under three general rubrics:
- Term life. This is by far the most common type of policy. You pay a set premium for a set number of years (a term.) You are protected only during the duration of the term, which is normally 10 or 20 years. This is the least expensive option.
- Whole life. With whole life, you are covered for life – so your beneficiary gets the death benefit regardless of when the insured dies. You may have to pay until age 90 or 100, or you can get limited term whole life and pay only 10 or 20 years.
- Universal life. This is very similar to whole life but with more flexibility to adjust premium amounts. And universal life typically includes greater potential interest earnings than whole life. Both universal and whole life will cost more than term life but give you more “bang for your buck.”
3. Balance “Perfection” With Affordability
Planning out your perfect policy to meet your exact needs is only half of the equation. You also have to make it practical, and therefore, affordable.
Risk categories such as age, tobacco use, medical history, current health, following a “risky” profession, being male or female, and living in a specific state or locale will all factor in. In this way, it’s much like choosing auto insurance and other types of insurance.
Whether you choose term or whole life (or universal), the length of the term (if applicable), how big of a death benefit you allow for, whether you expect to earn any interest, and other policy details will also greatly affect the cost.
What you really need to do is to write down your must-have features and then go over the resulting cost with an insurance agent. Adjust the policy in different ways so you begin to see what your real options are. Calculate the costs and benefits of all possible scenarios.
For assistance in choosing a life insurance policy that fits your needs and budget, contact Flagler County (FL) Insurance Agency today!