The Dos and Don’ts of Life Insurance

If you are a parent, you answer the, “does anyone depend on your income,” question with a resounding yes. You don’t want to think of anything happening to you — you have plans to see your little one turn the tassel on their graduation cap.

Still, life happens, and you owe it to your family to prepare for the unexpected. You need to invest in life insurance, but doing so can seem intimidating. Here are the dos and don’ts you need to know about getting the coverage your loved ones deserve.

 

1. Do: Lock in a Low Rate

Insurance companies use actuarial life tables to determine your chance of surviving a given year of age. If you guessed that your rates are lower the younger you are when you apply, you win a kewpie doll. You should start shopping for policies before your 30th birthday if possible.

 

2. Don’t: Wait Until You Get Older

“But,” you protest, “Have you seen starting salaries these days? How can I afford both a premium and rent?” Please don’t think you are out of options. A 20-year term policy lets you lock in coverage that lasts until your peak earning and saving years, and some allow you to convert to whole life before the conclusion of your coverage term.

 

3. Do: Explore Affordable Options

If you invest in a whole or universal life policy, you can expect to pay considerable monthly or annual premiums. However, those aren’t your only choices. You can also opt for term, guaranteed, or final expense insurance coverage depending on your age and health. Here are three methods to save cash:

• Term life: In this type of policy, you enjoy coverage for a specified number of years, usually 20. The advantage of this coverage includes lower monthly premiums. However, they do not accumulate cash value the way that whole or universal policies do.
• Guaranteed life: With these policies, you typically get drastically reduced coverage — think five digits instead of six — but you don’t have to take a physical or answer any health questions. As long as you pay the premiums, your company will issue the policy, making this option attractive for those with considerable health woes.
• Final expense insurance: This policy type typically only extends coverage to older adults. Check with your carrier. It makes sure that your family isn’t slammed with expensive funeral costs if something happens to you.

 

4. Don’t: Assume You Can Never Afford Whole Life

A whole life policy builds cash value and allows you to borrow against it. However, it comes with a considerable price tag, which causes many young parents to stay away. Before investing in a term policy, make sure it is convertible. Why? That means you can switch it to a whole plan before the term concludes without taking another physical or answering health questions.

 

5. Do: Use It for Strategic Financial Planning

A convertible term policy is a savvy financial move if you can’t afford whole-life off the bat. Otherwise, if you later become sick, you may never qualify — lock in your ability. Plus, you can use the savings to pay for your child’s college tuition, saving them a considerable amount in student loan interest.

 

6. Don’t: Take Your First Quote Before Doing Research

You owe it to yourself and your family to know precisely what your coverage entails. To prevent people from using such services for financial gain, many companies place limits if you commit suicide within a specified time frame. This contestability period gives your insurer the right to investigate whether you reported health conditions honestly on your application, so don’t lie — it could devastate your family’s finances.

 

7. Do: Review Your Policy Each Year

In general, it’s wise to name your spouse or partner as the primary beneficiary because courts will not pay benefits to a minor. If you appoint your infant, the money goes through a costly court process until they turn 18.

What happens, though, if you and your spouse both die in a car accident? You might want to name another trusted relative as a secondary beneficiary to avoid financial harm to your child. However, you should review your policy annually in case your family dynamics change or your little one reaches the age of majority.

 

8. Don’t: Let Your Coverage Lapse

If you let your life insurance coverage lapse during times of financial hardship, you’ll cost yourself more money in the long run. Like it or not, time stops for no one, and you’ll be older when you next apply. That means paying higher premiums, and if you become sick, you may never qualify again for the policy type you want.

 

Learn What to Do and Avoid When It Comes to Life Insurance

When it comes to life insurance, you need to know your dos and don’ts. Use this information to make the most educated coverage decisions for yourself and your family.