7 best tips for buying life insurance for the first time

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Life may be like a box of chocolates. However, buying life insurance is more like ordering coffee at Starbucks. Life Happens CEO and President Faisa Stafford said that Life Happens is an industry-funded non-profit organization responsible for insurance education for consumers. There are so many choices, it is difficult to know what to get. "This can be very confusing," she said.

In fact, according to a survey conducted by Life Happens and LIMRA for the annual insurance barometer study, confusion about how much and what type of life insurance to buy is one of the main reasons people think there is no life insurance. But according to another survey by Life Happens, the COVID-19 pandemic has sounded the alarm for many Americans and prompted some to purchase life insurance for the first time.

If you are considering buying life insurance but are confused, these 10 tips will help.

Tip 1: Assess your current financial situation

Stafford said that before figuring out what type of life insurance you need and how much life insurance you need, you need to know the truth about your financial situation.

Think about what you can do to support loved ones who depend on you financially. This will include emergency funds, retirement savings, and any life insurance obtained through work. You may find that you are not as prepared for the unexpected as you think.

Stafford recommends working with a financial adviser to discuss what needs you should cover for life insurance-whether it is a mortgage that needs to be paid, a child that needs support, a small business that needs to be maintained, or an inheritance you want to leave. As part of the benefits, your workplace may provide a connection with a financial planner. Or, you can find planners that only charge a fee through the National Association of Personal Financial Advisors.

Tip 2: Know how much insurance you need

AIG Life & Retirement Life Insurance CEO Adam Winslow (Adam Winslow) said that under normal circumstances, people will underestimate how much life insurance they need. They often only consider how much they need to repay major debts, such as mortgages. However, they should consider how much they need to help their spouse or partner pay bills, raise children, pay for college tuition or meet any other long-term needs, he said.

A rule of thumb is to have a policy with death benefit equal to 10 times your annual salary. But your own circumstances and financial goals may require you to have more or less money. A financial planner can help you come up with more accurate numbers.

Tip 3: Know the difference between term life insurance and permanent life insurance

Life insurance purchasers usually consider term life insurance and whole life insurance. Term life insurance will provide coverage for a specific period of time-usually 10, 15, 20 or 30 years. Before you reach a certain financial milestone (such as paying off your mortgage or getting your kids to college), this may be an affordable way to get insurance.

In addition to whole life insurance, there are other types of whole life insurance. Permanent life insurance provides lifetime protection, which is why it is more expensive than term life insurance. It is also more expensive because it establishes a cash value. This cash can be used for any purpose you want-to pay for emergencies, to supplement retirement income, to help pay for long-term care, and even to pay for insurance policies. Whether you choose a term policy or a perpetual policy depends on your needs and financial goals.

Tip 4: Know what affects your life insurance rates

The two key factors that life insurance companies consider when determining the insurance rates you pay are health and age. Winslow said that when you buy life insurance, the younger you are, the cheaper the price. That's because you tend to be healthier when you are younger, so the risk of insuring is less.

The rate you pay also depends on the type of policy you get and the amount of death benefit. If you get a term life insurance policy, the length of term you choose will also affect your premiums.

If you can only afford term life insurance policies but want permanent life insurance, most term life insurance policies offer the option of switching to permanent life insurance. You can now lock in low interest rates for term life insurance, and if your income increases, you can switch to a perpetual policy.

Tip 5: Shop around for the best price

Many insurance companies can easily obtain quotes online. As the rates may vary, you should get quotes from several companies to help you decide which company to apply for insurance. You can also work with an independent insurance agent who works with multiple insurance companies to help you find the best insurance at the best price.

Tip 6: Don’t just focus on quality

The rate you pay for life insurance is important because you want to make sure that the premiums match your budget. After all, if you are unable to pay the premium, the policy will not do you any good. However, price should not be the only factor you consider.

If you are buying a cash value life insurance policy, the internal cost of the policy may be as important as the premium you pay. If you are looking at indexed universal life insurance, please pay special attention to the guaranteed and non-guaranteed parts in the policy description. Consumer advocates worry about the dishonest sales of Index Universal Life Insurance.

It is important to find the best life insurance company. From independent rating agencies such as A.M. Best, Moody's, and Standard & Poor's. Insurance companies provide ratings on their websites. You can also ask your life insurance agent to provide company ratings.

Tip 7: Real application

Please be careful not to omit or cover up any information in your life insurance application. Winslow says honesty is very important because insurance companies can use third-party sources to verify the information you provide—that is, if you grant them access to your data.

For example, insurance companies can obtain information about you by accessing your medical records, prescription drug history, motor vehicle reports, and public records. You may also need to take a physical exam, including blood and urine tests.

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