If you're buying life insurance for the first time, you might be confused about exactly what type of life insurance you need and how much life insurance you should get. There are several different options available. So, before you start getting quotes, check out these tips for first-time life insurance buyers.
Know How Much Insurance You Need
A financial planner won't understand your financial situation as well as you do. So, you should avoid letting anyone tell you exactly how much life insurance you need to purchase. You can get a rough estimate of the total amount of life insurance you need by adding together the total amount of your debts, the estimated cost of your funeral expenses, and six months to one year of your income. The total of these three things added together should give your family enough money to pay your debts and continue to maintain their standards of living until your monthly income can be replaced. Alternatively, it's recommended that you multiply the amount of your annual income by eight and purchase insurance in that amount.
Get Multiple Quotes
You shouldn't choose a life insurance company without getting multiple life insurance quotes. Obtaining quotes from several different life insurance companies allows you to get the most competitive rate. You also need to get life insurance quotes for different types of policies. There are two different policy types available:
- Term life insurance, which typically has a lower cash value in the early years and increases in value in the future. This gives you a more affordable premium, but only pays out if your death occurs within the term of the policy -- which is typically anywhere from one to 30 years.
- Cash value life insurance, which has higher premiums than term life insurance, but the premiums and the cash value remain the same throughout the policy's life. It is possible to overpay a cash value life insurance policy. Typically, these policies can be cashed out -- if needed -- once a certain amount of payments have been made.
Don't Name a Minor Child as Your Beneficiary
Many people purchase life insurance policies so that their kids are taken care of after their death. While it's a smart financial move to make, you shouldn't list minor children as your beneficiary. If a minor is listed as your beneficiary and you die before the child is 18 years old, the life insurance company can tie up the money until the child is of age.
Purchasing life insurance for the first time can be stressful, because there are a lot of factors to consider. So, take your time. By getting a variety of life insurance quotes, taking time to compare life insurance quotes, and examining your financial situation, you'll be able to easily purchase a policy that fits your family's needs.