Are you looking to buy your first life insurance? If so, then you probably have a few questions on your mind, such as, “What kind of policy is best for me?,” “How much do I need for my policy?,” or “Which company should I buy from?”
Well, there’s no doubt that when you are buying life insurance for the first time, the experience can be both exciting, and a bit daunting.
In this article, we will discuss six essential tips that can help make the experience less stressful, by getting rid of all the frustrating false starts and other bumps in the road.
Know why you need it
Although most people will require life insurance at some point in their lives, you don’t need to buy a policy just because someone told you it’s a good idea. Life insurance policies are designed to provide families with financial security in case a parent or spouse dies.
Life insurance can help to pay for a college education, mortgage, contribute to fund retirement, help in estate planning, and even provide for some charitable bequests. Overall, in case your loved ones depend on your income for support, then life insurance is a great option for you.
Of course, if you don’t have them now but anticipate to have such needs in the future, you should consider buying a small starter policy. Why? The younger you are, the less expensive life insurance will be.
Find out how much coverage you need
Online calculators can be very helpful when determining the proper amount of life insurance. You may also get a ballpark figure using some formulas, the easiest being taking your annual salary and multiplying it by eight.
Alternatively, add the total monthly expenses your family will incur after your death, including ongoing expenses like school fees or mortgage payments. Divide the total by 0.07. You’ll want a lump sum amount that earns about 7% every year to pay for the ongoing expenses. Add this amount to any one-time expenses you need to cover, and the total will be a rough estimate of the amount of life insurance you need.
While these estimators and calculators can be helpful, they won’t give you any final answers. However, using these tools and learning as much as you can about how life insurance works will help you be more comfortable when it’s time to discuss your needs with a life insurance agent.
Check the quality of your provider
The life insurance policy will only be as good as the company backing it. You need to make sure that the company you choose is reputable, and can be relied on to be around for as long as you need the coverage.
Determine the right policy
There are two main options: permanent life, for a comprehensive coverage that often adds cash value, or term life, which has a more affordable premium. Nonetheless, there are still more options to explore.
Get professional help
A Los Angeles financial advisor is a good resource when it comes to insurance advice, and can help you factor in your needs, financial considerations, and your family needs.
Know the jargon
Insurance can be confusing, with some words like “dividend,” “premium,” “beneficiary,” and others.
Thanks to our friend and financial advisor in Los Angeles, Samuel Rad, for his insight on buying life insurance. Sam is a Certified Financial Planner in Los Angeles and has a wide range of knowledge about personal financial issues. He has helped many people meet their financial goals.