Want to Purchase Life Insurance? Here Are Tips to Help You Through the Process

We all want to make sure our loved ones are taken care of after we pass. Life insurance can help make sure our families are prepared for financial hardships. The NAIC offers tips to help you navigate the process of purchasing life insurance. 

What are the different types of policies?

• A term life insurance policy pays out if you die during the policy term. It might be appropriate if you are the primary wage earner for your family or if your spouse relies on you to pay the mortgage. Term policies are typically written for one, five, ten or twenty years. This type of life insurance is typically less expensive in your younger years than permanent forms of life insurance.
• A cash-value insurance policy is permanent life insurance. This policy will provide coverage throughout the policyholder’s life. It comes in a variety of forms including whole life, universal life or variable life insurance.

What should I consider when deciding to buy a policy?

• How many people are dependent on you financially?
• Will you have substantial debt and taxes owed after your death?
• Do you have alternatives to life insurance, such as savings accounts or other investments, that could take care of expenses after your death?

What should I know about beneficiaries?

• A primary beneficiary receives the policy benefit (a portion or whole, depending on whether or not there are other beneficiaries) if they outlive the policyholder.
• A contingent beneficiary receives proceeds if a primary beneficiary dies before the policyholder.

What else should I know about the process?

Comparison shop: Life insurance is a competitive marketplace, and much of that competition is focused on price. After you have decided which kind of life insurance is best for you, compare similar policies from different companies to find which one is likely to give you the best value for your money.

Know your company: Check the financial stability of the insurance company. There are several reputable rating companies that will help you do this. Some of these ratings are available at public libraries. Check with your state insurance department to verify that the company is authorized to do business in your state.

Read your policy carefully before signing: Never buy a policy you don’t understand. If you are given illustrations or booklets, save these materials with your policy. Make sure you understand the guarantees in your policy and the surrender penalties if you choose to drop the policy at any time. Ask your agent or company about anything that is not clear to you.

Regularly review your policy and update accordingly: Every few years, review your life insurance program with your agent or company and keep up with changes to income and your needs. Double-check that your beneficiaries are still the same. Review your net worth to reconsider the prospects your survivors may face when you pass away.

Consider replacement cost: It may be costly to replace your insurance if you change your mind during the early years of the policy. Don’t drop one policy and buy another without a thorough study of the new policy and the one you currently have.

For additional information or guidance about a policy, contact the department of insurance in your state. You can find its contact information here.