Tips for Buying Life Insurance

Life insurance, if you think about it, is almost a misnomer. It’s really income insurance because its primary purpose is, in the event of your death, to take care of those people who depend on your income. So theoretically, if you don’t have an income, or if no one else depends on your income, you could do without it.

There are different types of life insurance that achieve different goals, so think about your current needs and commitments, your family’s long-term needs, then talk to a professional about your options.

First, some definitions:

Term life insurance – This is the most common type of life insurance, and meets the needs of most people. Term insurance covers you for a set numbers of years, say 10, 20 or 30 years. You pay a monthly premium and your policy offers a set payout upon your death to the beneficiary you name, provided you die within the term of your policy. Term insurance generally offers larger payouts for lower premiums than whole life.

Whole life – There are many variations (universal, variable and others) that combine a savings or investment component with the insurance coverage. These options can offer certain benefits, and have significantly higher premiums than term insurance. Be sure you understand each option before making your decision. Age, net worth, investing preferences, your overall estate plan and other factors can help you determine whether these options are right for you.

Here a few tips to help you make informed life insurance decisions:

Buy while you’re young – With term insurance, you can get a sizable amount of coverage for a reasonable premium, especially if you’re young and in good health. If you’re buying after age 50, or are in poor health, expect higher premiums.

Buy enough coverage – Because term insurance can be very affordable, be sure to buy enough so you can rest easy that your family will be taken care of if you die unexpectedly. Will your spouse be able to pay off the house? What about paying college expenses, medical expenses in the event of a long illness, funeral costs, credit card debt and other debts? Will the death of a stay-at-home spouse mean higher child care expenses? Do you have elderly parents who depend on you? Consider what your family’s financial picture might look like after you’re gone.

Some experts recommend buying a policy where the death benefit is as much as 20 times the annual income your dependents would need to live on after you’ve passed. Others recommend buying a policy worth five to 10 times your annual income. The choice is yours. Some people want the peace of mind that comes from knowing that their family could invest the death benefit and live on the interest.

Buy a long enough term – If you have very young children, you may need a 20-year term or longer to assure that they’ll be covered through college. If you’ve got teenagers, you might only need a 10-year term.

Do your research – Check the financial soundness of the company before you buy. If you buy a 20-year term policy, you want to be sure the insurance company will be around that long. Experts recommend buying from an insurer rated A or better and the best rating is AAA. Standard & Poor’s is one of the major credit agencies that rates the claims-paying ability of insurance companies. There are also excellent web resources to help you decide how much and what kind of insurance best meets your needs.

There is no one-size-fits-all approach to life insurance, so take some time to learn what will work best for you. Ask lots of questions, talk to friends and family about their choices, and consult a professional insurance agent. Buying life insurance is an important step in helping protect your family’s future.

Contact your Johnson Insurance representative for more information.