Life Insurance: what can you really do with it?

Life Insurance: what can you really do with it?
Life insurance may be one of the most commonly purchased products, but that doesn’t mean everyone knows what to do with it. It’s easy to say you want life insurance, but knowing how and when to use it and why you need it can be difficult, particularly if you don’t know much about it in the first place. In this guide, we’ll look at what life insurance is, what types of policies exist, how they work and when they should be used and by whom.

Who needs life insurance

Like most things, there’s no one right answer. Some people buy life insurance as an investment vehicle; others purchase it as part of their estate plan. If you want to leave a family financially secure after your death, you might buy life insurance–or at least some term insurance to make sure your mortgage is paid off and your kids are provided for in case something happens to you. But first, know what life insurance actually is and how it works; that way, you can decide if it makes sense for you and your family.

Types of policies

Once you’ve decided on a policy, you have to decide what type of policy is right for you. There are three main types of life insurance policies, each offering different benefits and costs: time period lifestyles insurance, whole existence insurance and universal life coverage. Term policies are generally inexpensive but offer lower coverage amounts. Whole life policies tend to be more expensive up front but provide more consistent coverage over time.

How to buy it

Buying life insurance is fairly simple and relatively inexpensive, especially if you are young and otherwise healthy. Most life insurance policies are designed to cover a loss of income in case of death. They can be useful for providing a safety net for dependents or people who have loans that need to be paid off should something happen to you. If you have a family, it might be helpful for your spouse or children to have some kind of financial support after your death. (You may also want additional coverage if you own a business.) Life insurance policies typically cost between 1-10% of their face value each year, depending on factors like your age and health status.

When to use it

A life insurance policy can be used to cover funeral expenses, pay off mortgages and other loans and provide financial support for your loved ones after you pass away. There are other uses of life insurance but most policies will have a section explaining what is covered. Make sure you read that before purchasing one so you know exactly what it will do for you. If you can’t find it in there or aren’t satisfied with what it says, ask your agent and look online for more information.

When not to use it

Life insurance isn’t always a good idea. If you have very little in savings and only a small mortgage, it probably won’t make financial sense to buy life insurance. In fact, even if you have quite a bit of money saved up, or have big investments or other assets that would be hard to manage without your income–it might not make sense for you either. Life insurance can be expensive, so before deciding whether or not to buy coverage, be sure to weigh how much it will cost against how much peace of mind it will bring you–and also think about what other kinds of emergency funds you already have in place.

Questions to ask before buying it

1. Am I overpaying for my policy, given my age and health status? 2. Am I paying for a lot of features or riders that I don’t need or won’t use? 3. Are you locked into your current provider because of a long-term commitment, like through your job or credit card bonus point program? 4. Is there anything else out there that makes more sense than what you currently have in place, such as term life vs.

Tips for getting the best policy

If you already have a policy or are in a position to buy one, it’s important to understand how that investment can help protect your family if something happens to you. The most obvious purpose of life insurance is to replace lost income. If you were earning $50,000 a year and died prematurely, your family would probably struggle financially unless they also had some other source of income–inheritances are notoriously unreliable. But life insurance goes beyond just replacing lost income. Here are some other key benefits of life insurance

How much should you get?

To get a rough idea of how much life insurance you need, use a worksheet like TD Ameritrade’s Life Insurance Quiz. Enter your basic information, such as age and income, to get an estimate of how much coverage you should have. In general, most people can benefit from policies worth five to seven times their annual salary–the more financially dependent you are on your family members (particularly those who would not be able to return to work in your absence), the higher that number should be. However, if you’re single or at a stage in life where your salary is likely to increase substantially (and thus your coverage needs could change), it’s important that you consult an expert.

how lots will it cost me per month?.

Deciding how much life insurance you need–and how much you can afford to pay for it–is one of those annoying factors that depends on a multitude of factors, such as your family’s needs and your income. With that in mind, it’s safe to say that most people need life insurance (provided they have dependents) in some form or another. To determine just how much life insurance you need, start by figuring out your expected final expenses. These are costs, such as funeral costs and any debts you’ve accrued over time, which will be paid off once you pass away. From there, determine what percent of your annual income is ideal to cover these expenses.



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