So, what is the right option for you? In order to make an informed decision about life insurance, you should begin by asking yourself the following 4 questions:
- What are the reasons you require life insurance?
The main reason for life insurance is to offer financial protection to your loved ones in the event that you suffer a premature death. The requirements of what the insurance will provide for will typically evolve as time passes. For those who are in their early 20's and 30's,
life insurance purchases are most often made to cover the raising of children, housing costs, as well as future income potential.
As the years pass and individuals enter their 40's, 50's and 60's, the focus changes to wishing to supplement retirement, leaving behind a legacy, and for
- How much coverage will be needed?
There are a variety of calculators online which have been designed to aid in determining your insurance needs. Nevertheless, many of these calculators do not account for your potential future requirements as well as impacts upon your lifestyle. Thus, the best way in which to determine
potential future financial needs is to work with a financial advisor. Your financial advisor will assess your needs depending on your own specific financial circumstances and goals.
- Decide upon your budget
The main reason for investing in life insurance is of course, in order to protect against financial risks involved with premature death. Should you have budgetary restrictions and you can't gain the amount of coverage you need other than by purchasing term insurance, then it's advisable
to go ahead with that investment.
Worst-case scenario would be to invest in life insurance which was too costly. In which case you allow the policy to lapse. If you do decide to buy term insurance, be sure to ask if it's possible to convert your policy to permanent.
A number of term policies
have an option whereby it can be converted to permanent insurance for a particular time period, without the need for extra proof of insurability. If you do have a good level of budget flexibility, you can of course consider all the options - from low-cost term insurance right on up to the
highest cost permanent policies that provide more benefits.
- What other financial priorities do you have right now?
Making a decision to get life insurance should not be a decision made in isolation. You should be considering how much money is required for your loved ones should you no longer be there to provide for them as the main breadwinner. In which case, you can then determine how much it is that you need to invest in life insurance relative to these types of financial commitments.
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If you are thinking about purchasing life insurance, then prior to making any commitment, you should be aware of what it is that you want the life insurance for.
Recently, a study was conducted where consumers indicated that they wished to cover burial expenses and replace lost wages as the main reasons for possessing life insurance.
Consumers also prefer to own life insurance as a way to transfer wealth, supplement retirement income, or to pay estate taxes.
Term and whole life insurance policies can of course provide for these sort of requirements, though both types of policies are indeed very different from one another.
Term life insurance will offer financial protection to your loved ones over a particular "term" or period of time – for example, 10, 20, or perhaps 30 years. Term insurance is normally the more affordable option, which allows for the lowest initial premiums and also the largest amount of coverage.
However, where term life insurance will only cover a certain length of time, permanent life insurance on the other hand can cover your whole lifetime, given that you do of course pay for the necessary premiums. Permanent policies also offer the option to build equity which is called cash value.
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Once you have an answer to these questions, you will be in a better position to make a valid decision as to which life insurance product is right for you – either term or permanent.