Life insurance can become an important part of your family's financial stability and well-being, but if you're like most people, you might find the idea of shopping around for the right type of coverage a little daunting. Luckily, these eight simple steps can guide you along the way.
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1. Determine If You Really Need Life Insurance
Most people do, but not everyone. If no one is financially dependent on you, if you have no debt and will leave a property with enough cash to pay your taxes and expenses, you probably don't need life insurance. If you do not meet these criteria, you will probably need individual life insurance.
2. Calculate How Much Life Insurance You Need
There are two important questions to ask:
What financial resources will be available to survivors after your death? For simplicity, consider three categories of resources: (1) Social Security and other retirement-related survivor benefits; (2) group life insurance; and (3) other assets and resources. It's also important to know when these resources will be available—for example, Social Security survivor benefits are payable immediately to a surviving spouse with dependent children, but only after age 60 if there are no children.
What financial needs will your survivors have after your death? For simplicity, consider three categories of requirements: (1) final expenses; (2) loans; and (3) income is needed.
Then subtract your survivor's financial resources (Step #2) from their financial needs (Step #3) to determine how large of a policy to purchase. Many people are underinsured, often because they skip these steps or take a shortcut (such as buying a multiplier of annual income). For more help determining the right amount of life insurance, see: How Much Life Insurance Do I Need?
3. Consider Your Other Life Insurance Objectives
Some types of life insurance policies include a savings feature that can be used for purposes other than paying the death benefit.
4. Determine What Type of Life Insurance Meets Your Needs
Essentially, there are three types of life insurance policies- term life, whole life and universal life. If you only need insurance for a specific term, or are on a limited budget, a low premium term policy may be a good fit. If, however, you need insurance for as long as you live and want to accumulate savings, an overall or universal policy may be a better option.
5. Find out if you need to add a "rider" to the policy
You should consider two things—the waiver of premium and the guaranteed insurability. Some policies come with one or both included in the original contract, but if not, it's generally a good idea to add them. Waiver of premium pays the premium of a life insurance policy for you if you are disabled. Guaranteed Insurability allows you to add to the death benefit without providing additional evidence that you are in acceptable health.
6. Shop Around
There are many ways to save money when buying life insurance, but they don't always lead to paying lower premiums right away. That said, life insurance is a very competitive business so quotes can vary significantly between companies.
7. Decide Whether to Pay Annual Premium or Not
In most cases, it is better to pay annually rather than in installments because there is often a relatively large additional fee for paying smaller amounts more frequently.
8. Tell your beneficiaries about your life insurance policy
Once the policy is issued, inform your beneficiaries of the company that issued it, where to find the paper copy of the policy and any details about what you want them to do with the death benefit. While it is rare for people to be unaware that they are the beneficiary of a life insurance policy, it does happen and you want to make sure that the benefit is not claimed. And store your documents so that they can be easily accessed by your beneficiaries.
source: iii.org only information porpus.
