5 Tips for Buying Life Insurance for the First Time
5 Tips for Buying Life Insurance for the First Time.
With all of the options available, finding the right life insurance policy for your budget and needs can seem like a daunting task. However, finding your best-fit policy is easier – and more affordable – than you may expect. Read on for a few of our top tips for securing a life insurance policy that matches your goals.
Determine how much coverage you need
Before purchasing life insurance, be sure to consider:
- How much money your loved ones (spouse and/or dependents) would need to maintain their lifestyle if you were no longer around
- Any significant debt (mortgage, student loan, auto loan)
- If you want to provide extra support for your loved ones, such as funds for a college education or a down payment on a home
- If you would like to designate some of your policy’s death benefit to support your favorite non-profit
Having a good understanding of your financial goals will help you decide which type of life insurance policy is best for you. If you want financial protection for a certain number of years, such as 10-20 years while your children depend on you financially, or a term of 30 years to cover your mortgage, a term life insurance policy might be a good fit.
If you want coverage that lasts a lifetime with added benefits such as cash value savings, permanent life insurance would better fit your needs.
Understand what affects your premium rates
Term life insurance is one of the most affordable types of life insurance, with rates as low as one dollar a day. A pricier permanent life insurance policy would offer lifelong coverage and a cash savings component.
Adding riders to your policy could increase your premium rate but can expand your coverage to provide financial protection in the event of a critical illness or disability during your working years.
Before shopping for life insurance, you’ll want to have a good understanding of your retirement accounts, such as a 401k, IRA, or other savings vehicles you are contributing to each year. Since life insurance is a form of financial protection, your policy can work alongside your retirement accounts to cover a mortgage, outstanding debts, or support loved ones if you were to pass away unexpectedly.
For some people, purchasing several term life policies is a more affordable strategy to get the coverage they need when they need it most. If you need a certain amount of coverage that one policy cannot fully provide, you can ladder life insurance policies. Laddering means that you purchase several term life insurance policies and then set different term lengths for each.
Laddering life insurance can be a good option if you want one policy to cover your mortgage payments (such as a 30-year mortgage) and another policy to cover a number of years when you have financial dependents (such as a 20-year term when your children rely on you most). The ladder strategy can help you lock in lower premiums and can maximize coverage when you need it rather than paying for a policy when you no longer have the responsibilities you did 30 years ago.
Laddering is not advised for everyone; if you don’t know what the future holds for your family, it is best to stick with one life insurance policy such as permanent life insurance, which can provide coverage for a lifetime.