Securing a life insurance policy is something we should all consider, regardless of age, in order to protect our loved ones. But, most people don’t know where to start, and failing to get the right type of coverage can have disastrous consequences.
Asking the right questions before you choose a life insurance policy can help you choose the right level of coverage, as well as the right type of insurance policy.
Should I Buy Term or Whole Life Insurance?
Term life insurance provides coverage for a specific time frame, which can be from one year up to 30 years. The death benefit can be used to cover financial needs if the insured dies before the term expires, according to the Insurance Information Institute. However, once the term expires, you could be denied insurance coverage, or your rates could go up.
Alternatively, whole life insurance provides coverage that doesn’t expire. As long as you keep up to date with your monthly premiums, your coverage will remain effective throughout your lifetime.
How Much Coverage Do I Need?
Most people choose a number equivalent to their income, but they fail to account for wage increases, cost of living increases, and other financial changes that may occur between the present and the day the individual dies.
Financial advisors often recommend multiplying your annual income by 10 to arrive at a sufficient amount of coverage.
What Living Benefits Will Be Provided?
At some point in your life, you may need a source of funds to help cover your care expenses. For this reason, you should find out if and when the cash value of the policy will be available to you. There may also be the option of borrowing against your policy.
You should ask your life insurance agent in advance about the conditions under which you can either withdraw or borrow against the funds in your policy.
Will My Policy Have Cash Value?
Not all insurance policies are created equal, and some insurance policies have no cash value.
“Cash value is the savings element of a permanent life insurance policy that represents the policy owner’s interest in the policy. Only whole and universal policies have cash value,” explains David Mitchell of Ideal Insurance in Phoenix, Arizona.
Even if you have a whole insurance policy, you’ll typically have to wait a number of years before withdrawing funds from the account. Think of this process as being similar to building equity in your home. The first year of premiums will go toward financing the policy, and it will be up to five or 10 more years before you build up any value in the policy. Typically, a whole life insurance policy should be viewed as a long-term investment account.
What Happens if My Health Changes?
If your health condition improves, either through a change in lifestyle habits or a successful medical treatment, you may want to undergo a new medical evaluation. For example, if you have quit smoking since your policy was enacted, a new medical evaluation can help you qualify for a 10% to 20% drop on your monthly premiums, according to Bankrate.
Before you sign up for your policy, you should also find out what happens when your health begins to decline. This will help you ensure you’ll still have coverage.
Can I Get a Disability Waiver?
You may be wondering how you’ll maintain your policy if you become disabled and unable to work. While some insurance companies write waivers into the standard policies, other companies require that you purchase an additional disability waiver. The waiver provides for the insurance company to pay your premiums if you become disabled, but you’ll have to meet their terms for a disability in order to qualify.
Prior to meeting with your agent, it can be helpful to list your questions and concerns. This will help you ask about the issues you want to address during the meeting, so you and your agent can determine how best to meet your life insurance needs. Preparing for the meeting and talking openly with your agent can help you make sure you get sufficient life insurance coverage.