Buying Life Insurance the Right Way

Everyone who has a family or someone depending on them to provide financial support should have life insurance. It's just that simple.

In the unlikely event that the financial provider dies, there needs to be something to take the place of the lost income and that should be life insurance. Talking about one's mortality is not the most popular subject in the world. I know, I used to sell life insurance. Some of the looks I used to get made me feel like I had kicked the person's dog. No matter how unpleasant the conversation might be, however, it still needs to be had.

Buying life insurance can be scary and confusing but if you know some basic rules to follow, it can be done easily.

How Much Coverage?

There is no set amount of coverage because everyone's needs are different. Buying a $500,000 policy when you have a home that is paid for and a significant retirement fund would be overkill. Besides, it would send up red flags to the insurer, making them wonder why you are buying so much insurance.

When buying life insurance, you need to tailor your policy to your needs. Age, liabilities, projected income and obligations (like children), are all factors that you should consider when buying life insurance.

If you have a home with a mortgage, you would want to get enough coverage to pay a significant portion of it, if not all of it. Many people use life insurance payouts as an opportunity to pay off their homes. It is a smart idea and a good investment.

Do you have children? Did you plan on sending them to college? This is another expense to consider when you are calculating how much coverage to get.

Unless the person dies suddenly and even if they do, there is sure to be some final medical bills to pay. This is something else that should go into your calculations. Although you may not know exactly how much those bills might be, your best guess will have to do. In this case it is better to have more than you need than not enough.

Then there is projected income. You will have to incorporate wage increases, bonuses and such to figure this amount. You will also have to consider how long the person was going to continues to work and if you yourself are going to work in order to supplement the insurance policy.

As you can see there is a lot to consider when trying to figure out how much life insurance coverage that you need. If you find out down the road that you under-guesstimated how much coverage that you need, you can always add more coverage as you need to.

What Type of Coverage Should I Get?

I'm glad you asked - term insurance.

I know a lot of people will disagree with me on this but one thing you need to consider is that you are buying life insurance, so since that is what you are buying that's exactly what you should buy. I know that sounds confusing, so let me explain.

You are buying life insurance to replace income that may be lost in the event that the provider dies. Term life insurance accomplishes that in a simple to understand way because you are paying for pure life insurance and nothing else. You know exactly what coverage you are getting with no strings attached.

Now I just made a lot of insurance agents mad because they want to sell you a hybrid policy that has an investment vehicle attached to your life insurance policy. These policies go by a variety of different names. The most popular have been whole life and variable life. I don't know about you, but in this present economic climate, I don't want anything with "variable" attached to it.

These insurance policies usually promise a rate of return somewhere around 3% or a little higher, which sounds okay except when you take a good look at the policy, you usually don't start seeing any earnings until the third year. Up until that time, you have been paying bloated premiums which are much higher than they would have been if you had bought a term policy. Besides that, with the investment vehicle attached, you don't know how much of your premium is actually going to pay for insurance, which is what you were seeking to do when you bought the policy.

If you want to buy life insurance, then do that and only that. If you want to invest, then do that but don't mix the two. It is a bad cocktail and you won't like the taste of it. Remember this, when you go to invest, you don't attach an insurance policy to it. So don't do the reverse either. I used to work for a company whose slogan was "buy term and invest the difference." This is good advice to follow.

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