Choosing the right life insurance policy is very important for both you and your dependants. Before choosing a policy however, you will need to decide how much coverage you need to meet your obligations and what kinds of plans will ensure your dependants are well taken care of in the years after your death. Therefore, choosing the right plan requires planning, understanding of all the options available, and serious thought. Here are five tips that can help you choose the right plan and manage it appropriately.
Identify What Kind Of Cover You Need
Very often, individuals get life insurance to meet certain, specific needs. It could be either to provide an income for your dependants if you were to die and wish to ensure their standard of living wouldn’t need to drop; to pay off a mortgage; meet funeral costs; or just to leave your loved ones a suitable inheritance. These priorities differ from each person to person, and so the best suited policies, with different terms and premiums attached, will also differ from person to person.
For example, getting a life insurance policy just to cover a mortgage usually means that the term of the policy will be the same as the length of the mortgage. The payout will decrease over time since it’s only meant to cover a mortgage. However, the premiums will also be lower.
On the other hand, you might want a life insurance policy to provide for your dependents. A policy that gives a steady payout to your dependents can allow you to look after them even in death.
In the next section, we’ll consider the various kinds of policies that are available to you. Identifying the different kinds of policies can allow you to choose the most suitable plan for your situation.
Choose A Plan That Suits You And Your Dependants
There are several different kinds of life insurance policies, and understanding what their terms are can help you decide which is best for you and your dependants. Here is a brief review of each of these terms:
Level Term Insurance
This lasts for a duration that’s agreed upon at the start of the policy. The insurance will only payout if you die within that period. This kind of insurance is best for people looking to pay off a fixed debt in the event of their passing. The insurance policy can handle the payment instead of the burden being handed to your dependants.
If there are no debts, a lump sum is paid to your dependents instead.
Decreasing Term Insurance
This is also known as mortgage protection cover, and its terms are as discussed earlier. It is meant to cover a mortgage and, as such, the potential payout decreases over time. This is best if your dependents can cover their other expenses.
Family Income Benefit Insurance
The only significant difference between this and level term insurance is that it pays out a steady amount to your dependants instead of a lump sum. The payout continues to be made for the remainder of the policy’s term.
In the other kinds of insurance policies, your dependants only receive a payout when you die within the term of the policy. If you die after the term expires, there will be no payout. However, with Whole-Of-Life, the policy covers your entire life. It has an “infinite” term, which means your dependants will receive a payout, no matter when you die.
This kind of policy is typically more expensive than others.
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Review Your Policy Periodically
When you choose a life insurance policy based on you and your dependants’ needs, it’s also best to review it after some time. For example, with decreasing term insurance, you should review it after you finish paying off your mortgage. This is because you’ll no longer have a life insurance policy, and may need to get another.
People may take out whole-of-life insurance because they don’t want their dependants to be in a financially unstable position after they die. If these circumstances change, you may want to review your cover. For example, in a situation where your dependants now have additional income, paying the high premiums of a whole-of-life policy may no longer be necessary
Another kind of review that you should consider is comparing rates among different insurance providers. Even though some policies have higher premiums than others, the rates still differ from provider to provider. Knowing what these rates are and how they apply to you can help you find a lower premium on the same policy.
Consider Joint Policies
A joint life insurance policy is one in which two individuals get coverage under the same policy. When one person dies within the term, the payout is made to the other person, and the policy is terminated. You can also decide to have the policy payout after the second person dies, instead of the first.
Whether a joint life insurance policy is preferable for you is dependent on several factors. One is that it’s more affordable than two single policies. Another benefit of a joint policy is the fact that the surviving individual can still take out a single policy after receiving the payout from the joint policy.
However, the premiums on a joint policy might increase if one of the individuals have poor health.
Prepare Your Medical Report
Your state of health will have a big impact on the premiums you pay on your life insurance policy. As we have discussed, if one of the members of a joint policy has poor health, your premiums will be higher. Severe conditions in your medical history like diabetes and cancer have a tendency to influence the premiums on a policy. On the other hand, minor conditions like low back pain are unlikely to have an influence.
Depending on several factors, the insurer may require medical evidence of your state of health before agreeing to a policy. These factors include your age, family history, and the kind of benefit you are applying for. The older you are, the more likely it is that you’ll be required to provide medical evidence before you can be granted a benefit.
The Bottom Line
A life insurance policy is a serious undertaking that has the potential to affect the lives of your dependants long after you’re gone. As a result, it is important to put serious consideration into the kind of policy you’ll be taking out, and speak to a professional advisor before making any decisions in order to ensure you are making the right choices for you.