There are several important questions to ask when buying life insurance. Life insurance isn't something that most people like to think about, but whether you're single or have a family, acquiring adequate coverage can cover your final expenses. Unfortunately, some people don't get the coverage they need. Here are seven crucial questions to ask when buying life insurance.
1. How Much Coverage do I Need?
Inquiring about coverage is one of many questions to ask when buying life insurance. There are no hard and fast rules regarding coverage amounts. Some financial experts recommend getting a policy that's at least 8 to 10 times your annual salary if you have a family. However, if you do not have any children or dependents, you may only need a policy to cover final expenses, such as debt, the burial and your funeral.
2. What Type of Policy is Best for My Situation?
There are two types of life insurance policies — a term policy and a whole life policy. A term policy is cheaper, but unfortunately, these policies expire after 10, 20 or 30 years. A whole life policy is a permanent policy, but more costly. However, you don't have to worry about shopping for new insurance in the future.
3. What Happens at the End of a Term Policy?
Since a term policy eventually expires, there are several options available upon expiration. You can renew the policy, but in most cases, the insurance provider will reevaluate your medical history and charge a higher rate accordingly. Depending on the policy, you might be able to convert it to a whole life policy before the end of your term. If you convert to a permanent policy, the insurance company will not order a second medical examination. Your new rate will be based on your health at the time of your initial approval.
4. Does the Policy Provide Living Benefits?
Not all life insurance policies have a cash value. To receive this benefit, you’ll need to purchase a whole life or a permanent life policy. These policies earn a cash value as they mature; and if necessary, you can borrow against these policies in the future. The amount borrowed is deducted from the death benefit paid to your beneficiaries. Therefore, a whole life policy can function as a secondary savings account.
5. What Are the Exclusions?
Some life insurance policies have exclusions. In other words, the insurance company will not pay a death benefit under certain circumstances. For example, some life insurance policies will not pay a benefit if the policyholder commits suicide, or if the person dies engaging in any type of illegal activity.
6. Is a Medical Examination Required?
Although a medical exam is common when applying for life insurance, not all policies require a medical exam. If your policy does not require a medical examination, you will pay a higher premium. Therefore, if you're relatively healthy, it's best to go with a policy that conducts a medical examination to lower your premiums.
7. Will My Premium Increase as I Age?
If you purchase a whole or permanent life policy, the premium will not increase with age. This is not the case with a term policy. At the end of each term, your insurance premium can increase based on your current health.
Life insurance is a necessity, therefore, don’t delay obtaining a policy. If you have other questions or need additional information, speak with a life insurance agent or a financial planner. Which do you think is better, a term or a whole life policy?