Looking for Life Insurance – What you need to know
The choices in life insurance can seem overwhelming, and they are difficult to understand at first glance. It’s hard to know exactly where to start. let’s look at a few questions to help narrow the option and find the best life insurance policy!
1. Determine your needs:
The purpose of life insurance is to provide financial protection to surviving dependents after the death of an insured. Life insurance protection has many uses. However, some of its best uses are to;
- Protect your family financially if you were no longer around.
- Establish an instant cash emergency fund.
- Pay off credit cards and other individual/family debts.
- Pay off mortgages.
- Create a children’s education fund.
- Pay estate taxes
There are two important questions to ask:
- What financial resources will be available to your survivors after your death? (It is also important to know when these resources will become available)
- Social security and other retirement-related survivor benefits
- Group or Employer-sponsored life insurance
- Other assets and resources.
- What financial needs will your survivors have after your death?
- Final expenses
- Income needs.
It is prudent to re-evaluate life insurance needs annually, or after significant life events like marriage, divorce, the birth or adoption of a child, and major purchases, like a house. Life insurance agents or brokers are instrumental in assessing needs and establishing the type of life insurance most suitable to address those needs.
READ: Insurance Basics 101
2. Consider other objectives you may have for your life insurance
Some types of life insurance policies include a savings feature that can be used for purposes other than paying death benefits. A simple term policy is adequate for the vast majority of Canadians, especially young parents who need a hefty death benefit they can afford. There are several situations where permanent insurance really is the better choice;
- You could become uninsurable
- You want to leave a Legacy
- You have more capital than you need
- Your Estate will face very high taxes
Permanent life insurance is exactly that: a policy that remains in place until death. The advantage with permanent life insurance is that your premiums generally stay the same for the duration of the policy. When you first buy a permanent policy your premiums can be much more expensive than a term life policy. However, your premiums might actually become lower than term life in your later years.
3. How much can you afford
Your premium will vary depending on the type of policy, the size of the sum insured and also the risk of a claim. Age is also a factor, so life insurance will be more expensive for an older person. Similarly, if a customer is in poor health, they can expect to pay a higher premium. The insurer will take into account occupation, hobbies, lifestyle – such as weight and fitness – to help determine their premiums.
4. Can older or unwell people buy life insurance
Yes, but life insurance premiums rise with age and older people will almost certainly pay more for cover. It is still possible to take out life insurance when you are in your 50s, and some firms will accept without medical or health questions.
In truth, it can be difficult to find affordable life insurance if you have a pre-existing medical condition, especially a serious one. Some insurers will just turn you down outright, while others will exclude the condition itself. For example, if you had diabetes, the policy would not pay out if you died from the disease.
Nevertheless, there are a number of specialists who offer life insurance to those with pre-existing conditions, but be prepared to pay higher premiums because of the high risk of a claim.
5. Can’t afford the premiums, what should you do?
Don’t feel guilty; just buy a smaller policy. It’s far worse to not buy anything or to buy too much insurance and stop paying your premiums because you can’t afford it — that’s wasted money. It’s more important that your family gets some help, rather than none.
When choosing life insurance, find a broker you trust, that can quote, evaluate or help to find the right coverage.