Having life insurance is eminently sensible if you want to be able to provide for your loved ones when you pass away, but with so many policy options and factors to consider, knowing which package to pick can be tricky.
To help you make the right decision for your needs and circumstances, here are 5 key aspects to keep in mind as you search for a life insurance policy.
Ownership is transferable
Although a policy typically covers just one individual, this does not need to be the person who also owns the policy. Indeed in many cases, it will make sense for this to be a separate party, since the owner can take charge of important administrative tasks which may no longer be within the capacity of the person being covered, beyond a certain point.
You can handle the transfer of life insurance policy with relative ease, but remember that you may need to pay tax on this transaction if the value of the policy is over $15,000.
There are different types of policy available
Life insurance is not a one size fits all product, but rather a diverse market in which there are plenty of cover options to consider.
In general, there are two main types of policy to choose between. The first is term life insurance, which operates over a fixed period ranging anywhere from 5 to 20 years. Because of its time-limited nature, such a policy will usually be more affordable, because it presents less risk to insurers.
The second is whole life insurance, which as the name suggests will stay with you until you pass. The costs are higher and it is effectively considered an investment since it appreciates in value over time. If you can afford the asking price, this type of policy may suit your situation more.
It is best to speak with a specialist to determine the right path at this point, but the good news is that you can usually review your policy further down the line and make changes if necessary.
Lifestyle impacts your policy options
When applying for life insurance you will need to provide a lot of information about the kind of life you live, and lots of variables will play a part in determining the price you will pay to get covered.
For example, while things like age and gender are things you have no control over yet will impact this, there are elements that you can control which also make a difference. People who smoke and drink heavily, or are overweight, will be seen as a worse prospect than those who live healthy lifestyles.
Of course, if you want to save money on a life insurance policy, then giving up bad habits will be the best way to achieve this. Those who are young and in good condition will always pay less than those who are a little longer in the tooth, but regardless of age there are usually lifestyle changes you can make to get a better deal.
Most importantly of all, you should always be honest about your health and your broader circumstances when you apply for life insurance, because if you do not disclose some significant morsel of information at the time, your dependents may find that the policy does not get paid out when it is time to make a claim. As with any type of insurance, being as truthful as possible will put you in the best position to actually benefit in an emergency.
There are exclusions & exceptions
Because of the nature of a life insurance policy, it will only cover you in the event of your death, meaning that the people you leave behind will not be left in a significantly worse financial situation by your passing. If, on the other hand, you are rendered chronically ill or disabled and are thus unable to provide for your family, a life insurance policy will not generally protect you against this set of circumstances; critical illness insurance is more suited to this scenario.
Another point to keep in mind is that many life insurance policies will have exclusions that prevent pay-outs depending on the nature of the individual’s death. If you are a fan of dangerous sports and outdoor activities, for example, then death in the pursuit of your risky pastime might not be protected by default and you will need to pay extra for the privilege. Likewise, if a drug or alcohol-related fatality occurs, the cover is not guaranteed on all policies.
Not everyone needs life insurance
While some people should certainly seek to secure a life insurance policy as soon as possible, for others it makes less sense and might actually be an unnecessary financial burden.
Single people who have no dependents do not need life insurance, for example. Likewise, if your partner has a good job, or you have no children with your spouse, then cover may be irrelevant.
Take your time, weigh up your options carefully, and get expert assistance to ensure your life insurance policy covers all the bases.