Insurance isn’t exactly a glamorous topic—which is why most of us put off these major decisions until we know we need to make them.
But when it comes to life insurance, you may not be able to afford procrastination. Life insurance can help your family survive the financial impact of your death, especially if you’re the household’s primary breadwinner.
Fortunately, understanding life insurance isn’t as hard as you think. The quick guide below gives you all the information you need to get started and shop around.
Know Your Coverage Needs
Life insurance payouts can be used for a variety of things. Traditionally, beneficiaries will use them to cover your funeral expenses. However, the payout can also be used to pay off household debt or even to briefly make up for the difference in household income after your passing.
Take inventory of your family’s financial situation to decide how much money your beneficiaries may need in the case of your death, including any of the situations above that concern you. You can also even choose to provide money for additional situations, like college tuition for a child or retirement income for a spouse.
Knowing your needs can help you pick the right coverage level as you shop around.
However, keep in mind that your needs will vary depending on your current financial situation.
For example, established households with substantial financial or retirement savings may not need this type of policy. On the other hand, the life insurance cash value paid out to your family may be necessary if you’re worried about your financial safety net.
Decide Whether You Need Temporary or Permanent Coverage
Temporary policies, also called “term life insurance,” cover a specific time period—usually a decade or more. During this period, you pay the insurance premiums, and your beneficiaries will receive a death benefit if you die. Otherwise, the policy expires.
Permanent policies cover a range of policy types: whole life, universal life, and variable life. While each of these insurance types has slight differences to consider, the main thing to know is that permanent policies will cover your death no matter when it occurs.
It’s not uncommon to start with term insurance, which often costs less than permanent life insurance. It can also be easier to understand, especially if you’re new to the world of life insurance.
However, in some situations, it may not be the best choice for your family. Make sure you do your due diligence and research both options before settling on one over the other.
The Road to Understanding Life Insurance
If you’re considering your family’s financial wellness strategy, you can’t afford to overlook life insurance protection. But understanding life insurance policies can be difficult, and it’s hard to know when you’re picking the best option. Don’t hesitate to reach out to insurers or to work with an independent agent, as having an expert on your side can give you additional peace of mind in your decision.
Looking for more of the personal finance strategies you need to protect your family in the long-term? Check out our other posts for more helpful insights.