Life Insurance

There are a few questions that need to be answered when buying life insurance.

What are your reasons for buying life insurance?

Do you have small children that need to be provided for in the event of your death? Are you their primary caregiver and need to provide for someone to care for them in your absence? Are you wanting to provide for your children's education after you are gone?

Maybe you have a home and you want to provide funds so that your loved ones can pay off the mortgage and have a place to live worry free after you are gone. Maybe you want to provide for your final expenses after your death, like final bills and funeral expenses.

Quite possibly you might own a business and want to set up a buy-sell arrangement. In a buy-sell arrangement, the life insurance provides funds to the remaining partners that is to be used to purchase the deceased person's portion of the business from his heirs. 

There is also key man insurance. This is used in situations where an employee is so integral to the life of the business that their death would likely cause some sort of business interruption. The financial benefit allows the business time to implement their succession plans.

When should you buy life insurance?

Adverse selection is a term that refers to that those who need insurance the most are the most likely to apply for insurance. Life insurance is bought to insure against the risk of a person's death. Therefore, the health of the individual is important and will be reviewed by the insurance company in many cases.

The age of the individual is important, as well, because the older we get the closer we approach the natural end of our days. Age and health impact the rate a person will get when applying for life insurance. Buying when you are young and healthy will afford you the best rates.

Additionally, be honest about your health when filling out the application. You can be denied insurance if you are untruthful on your application. Likewise, if the misrepresentation is discovered during the claim, your beneficiaries might not receive the death benefit you intended for them. 

How much should you purchase?

It really depends on how you wish the funds be spent in the unfortunate occurrence of your death. You might want to add up your debts and use that as a factor in deciding the amount. 

Or you may decide to use your annual salary as a factor. For example, if your children are young and you wish to provide an amount equal to your annual salary for the remaining years your children will need to be cared for.

A good insurance agent will help you decide how much insurance is right for you and your family or situation.

What type of life insurance should you buy?

The most common type is a term policy. Term products are purchased to provide a particular face amount of insurance during a specified period of time. For example, if you purchase a 20 year term policy, your premiums remain the same during that 20 year period of time. 

A term policy makes the most sense for most individuals. There are other types of policies. Some can earn a small interest during the life of the policy. If you are looking to earn money on an investment, a life insurance policy is not the best option. Typically, the guaranteed interest rate is so small that other investments make more sense.

Should you insure your children?

Yes. Funerals are expensive and the last thing a parent needs is to worry about the cost of a funeral when their child has just passed. 

The face amount of the policy for a child will be much lower than that of the parents. It is unlawful to make a person more valuable dead than alive. This is why insurance companies evaluate the purpose for the insurance and the reasonable need for the amount. They also look at the beneficiaries to make certain there is insurable interest for the beneficiaries to need the funds when the insured passes.

How should you go about purchasing life insurance?

The best way to go about purchasing life insurance is to find a reputable agent who will sit down with you and go over your family and life situations and recommend the best policies for each of you. Life insurance can be complicated and the advice of a qualified insurance professional will help you navigate the many options out there so you can make an informed decision on how best to protect your family's financial future.

Links:

http://money.cnn.com/magazines/moneymag/money101/lesson20/index.htm

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