You have probably already discovered by searching online or speaking with an agent that there are many different types of life insurance and just as many different reasons to purchase it. As an agent, I often get calls from people telling me they need life insurance. When I ask what amount they need or what they plan to use it for, the conversation seems to get disconnected pretty quick. Simply put, life insurance is a funding vehicle to transfer a risk or fulfill a need. Most people understand that someday they will die and that their surviving loved ones will be responsible for the costs of the burial. By the way, that happens to be about $8k to $10k today. A working spouse is certainly aware that upon their death the surviving spouse is going to be stuck with a mortgage and other household expenses. We could go on and on. So then, how are we to determine the proper amount of life insurance and which kind should we buy?
It’s called “needs analysis” and the good news is that you can find these free programs all over the internet by using your favorite search engine. A good example of a simple needs analysis calculator can be accessed at http://www.lifehappens.org/life-insurance-needs-calculator/. Some go more in depth than others but for the sake of this article let’s stay simple. Simply go to your needs analysis calculator and input the requested data and you will get a number that you should attempt to cover. Now beware, if you are younger and have a mortgage, vehicle loans, small children, and not much invested into retirement, this number is going to be pretty scary. However, since you are younger, you are going to buy insurance cheaper and have more time to get your ducks in a row. It is very important when purchasing life insurance that you buy what you can comfortably afford. Do not, I repeat, do not put yourself in a position where it is a stretch to make the life insurance payment. When times get tough this will be the first expense you eliminate and you will have wasted your investment. Instead, consider the different types of products along with the costs and set up a plan that will fulfill your needs.
Term Life – this is the lowest cost product. It is like renting insurance. You buy it in a specific block of time and pay a specific monthly payment. Very useful for young adults with a lot of debt.
Term Life – this is the lowest cost product. It is like renting insurance. You buy it in a specific block of time and pay a specific monthly payment. Very useful for young adults with a lot of debt.
Universal Life – this is similar to Term but has an account attached to it that earns interest. The intention is to pay a lower premium and use the interest accrued to support the cost of insurance. These policies will usually build cash value that you can access in the event of an emergency.
Whole Life – this is a guaranteed premium policy that is setup to last a lifetime and build cash value. As long as you pay the established premium it will not cancel. This product is especially useful to pay for final expenses. Buy it when you are younger as it gets pretty expensive with age.
There are many other products out there that are a variation of the basics that I have listed. My best tip for anyone looking to purchase the right amount of insurance at the right price is to call a broker who will assist you with your needs analysis and then have access to many companies to put together the best plan at the best price. If you are just looking to by a $15,000 benefit policy, go online, it’s very easy.
I am an experienced insurance agent with over 20 years in the P&C and Life insurance industries. I have been an agency owner, manager, consultant and producer at agencies in Florida and Georgia. Since I read quite a lot, I consider myself knowledgeable in many different areas.
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