The Dos and Don’ts of Purchasing and Owning Life Insurance for the First Time

Life insurance is something many people often think about and then become distracted by whatever else is going on around them.  It’s not that people don’t understand the value of life insurance, it’s just that they think they can afford to put it off until much later in life.  It’s like kicking the can down the road.  Sometimes it is a major event which forces a serious discussion about acquiring life insurance. Just like with other important matters, it’s important to understand the basics of life insurance.  Understanding the essential aspects of insurance coverage can provide some peace of mind as you consider what type and the amount of coverage you and your family need.

If you have never purchased life insurance before, allow the following essential dos and don’ts to guide your decisions.

Common reasons to purchase life insurance include replacing lost income in the family, paying off a mortgage or large debts, funeral expenses, providing financial support for dependents, and charitable or legacy giving.

There are two primary types of life insurance: Term Life Insurance, which is the generally affordable and cost-effective insurance coverage for a set period, such as 10, 20, or 30 year and Permanent Life Insurance , which includes whole life, universal life, other variations, and which carries with cash value, which may be borrowed against by the insured. Permanent life insurance policies last a lifetime and may offer tax savings.

The general rule of thumb is to purchase life insurance which is 10–15 times your annual income.  Said another way, the right amount depends on your debts, dependents, and long-term financial goals. It is important to think about on-going expenses such as college tuition, medical expenses, and long-term caregiving for family members.

Upon your death, beneficiaries receive insurance proceeds from your life insurance coverage.  A regular review of your beneficiary designations during your lifetime is key. Life events such as marriage, death, divorce, and the birth of a child are a few good reasons for a regular update of your beneficiary designations.

An Advisor can explain how the various insurance policies work, help you compare coverage costs, help you determine the type of coverages and what works best for you, explain the premiums structure and payouts, and inform you about any exclusions or limitations which apply.

When you’re young you often feel invincible, unstoppable and able to take on the world. All of this may be true, but I would not recommend proceeding without insurance coverage in place.  Anything bad can happen at any time in our lives.  Procrastination is the most common reason why people delay purchasing life insurance. Waiting until you’re older to obtain life insurance means you will pay more for the coverage, or coverage may be denied.  Life insurance becomes more expensive as you age, and certain illnesses and health conditions can limit your options. It is best to consider buying life insurance coverage while you’re younger, and healthier.  Some of the benefits of purchasing life insurance in your younger years is that you can lock in lower premiums, get more guarantees of coverage, and protect your family in the younger years.  until they are older, when coverage costs more,

Life insurance provided by your employer is a valuable benefit, but it is generally not enough coverage for most. Most employer policies only cover one to two times your salary, which is often not enough for the economic needs of today’s modern family.  Unlike private coverage, which provides continuous coverage, employer coverage ends when you separate from the employer.

Medical history is an important consideration in determining the price and the amount of coverage.  Insurance companies verify medical history through exams, pharmacy records, and medical records. Be honest with your medical background because dishonesty could mean denial of coverage. Even if coverage is not denied, subsequent cancellation and non-renewal of your policy can occur.   Integrity now protects your family members from disputes about coverage.

There are different rules of thumb for how often you should review your insurance policy. Every two to three years is not a bad rule of thumb. You may base your review on a major occurrence such as when buying or selling real estate, death, birth, when family responsibilities change.

Price does matter, but it’s important to remember that the cheapest policy may not be the one that truly protects your interests. Other things to consider are the financial strength of the insurer, how long the coverage lasts, the policy benefits, add-on to the insurance coverage, called riders, and the flexibility of the insurance coverage, such as the ability to borrow against accumulated cash value in an insurance policy.