Checklist: 5 Things to School Yourself On Before You Shop for Life Insurance
For many people, just the idea of shopping for a life insurance policy can seem daunting—but it really doesn’t have to be so intimidating.
To help make the process easier for you, we’ve compiled a handy checklist of five life insurance basics to familiarize yourself with—so that you’re well versed when you’re ready to consider getting a policy.
Get educated about your policy options.
When you start the process, one of the first things you’ll need to decide is what type of policy works best for your situation.
There are two main types of life insurance: term and permanent.
Term life insurance gives you coverage over a set period of time, which can range from five to 30 years. The premium remains fixed, and you can generally drop your coverage at any time without incurring penalties. The trade-off is that the premiums may increase after the set term, potentially making the policy more expensive to renew.
If you choose to get another term policy after the initial one has expired, you will have to undergo a new underwriting process, which also generally means an increase to your premium.
Permanent insurance provides coverage over the course of your lifetime. It may include a “cash value” feature that you could potentially withdraw or borrow from. The most common type of permanent life insurance is whole life, in which your premiums stay fixed over the course of your lifetime.
Get educated about how a premium works.
Your coverage is contingent upon making a regular payment, known as a premium, to the life insurance company. The cost is based on the risk assessment results of the underwriting process, which take into account such factors as your age and medical history, among others.
Once your premium is determined, it can be paid monthly, quarterly, twice a year or once a year, depending on your specific policy. One thing to note is that there are usually fees associated with not paying your premium annually.
Get educated about how to choose beneficiaries.
Your beneficiaries are the individuals who will receive your death benefit, or payout, should the unexpected happen. It’s up to you to decide who will get the money in your policy—and that’s no small decision.
If you have dependents, such as a non-working spouse or young children, they’re the people you’ll likely want to designate as primary beneficiaries. You can also designate aging parents, or anyone else who currently relies on you for support. And if you’re taking out a policy to protect a business that you own, your business partner can be named as a beneficiary.
Note that you can name more than one primary beneficiary, splitting the amount between them as you see fit. It may also be a good idea to consider naming contingent beneficiaries who will receive the payout should your primary beneficiaries pass away before you do. And you don’t necessarily have to designate a person as a beneficiary—you can also name your estate or a trust.
Get educated about how life insurance benefits work.
In the event of your death, your beneficiary will need to make a claim. The insurance company will then write a check for the amount of the policy, known as a benefit, either as a lump sum or in regular payments, depending on your policy. (Generally, the more dependents and financial obligations you have, the greater the death benefit you may need.)
The designated beneficiary can then use the money to cover several different types of associated expenses, which fall into two buckets: immediate costs and long-term costs.
Immediate costs can include funeral expenses, estate settlement and lawyer fees, medical bills, taxes and personal debt. Long-term costs encompass ongoing expenses that impact quality of life for surviving beneficiaries, such as debt payments, child care costs or college tuition. Your beneficiary can essentially choose to use the death benefit for almost any type of expense.
Get educated about how to shop for a policy.
There are two main ways to get a life insurance policy: through a local agent affiliated with an accredited insurance brokerage or through your employer.
If you have the option of getting life insurance coverage through work, normally you can have the monthly premium automatically taken out of your paycheck.
One thing to keep in mind is that if you switch jobs, you’ll likely have a gap in coverage until you secure a new policy, either through your new employer or independently. In the meantime, you can look into supplemental life insurance to help ensure your coverage during this transition period.
Bottom line: It’s worth checking in with your benefits administrator to see if your company offers coverage, as well as to determine if you can buy additional coverage beyond just the basic to suit your needs.
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such, the people interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services, and the views expressed are their own. LearnVest Planning Services and any third parties listed in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.