Published March 13, 2017|5 min read
Life insurance is important. You know that. And you’re going to get around to shopping for it. Soon. You even made a New Year’s resolution to buy it this year!It’s just that things are busy in January, and you have a lot of other resolutions you’re trying to keep up with, and now it’s already March, and maybe you should just wait until summer to start shopping, and buying life insurance sounds like a great resolution for next year…Taking a first step, whether it’s to start going to the gym or to buy life insurance, is hard. It could be a matter of simple procrastination, or you may not even know where to start. And with something as long-lasting and important as life insurance, the thought of making the wrong first step is enough to paralyze anyone from taking action.
But "first step" is a relative term, depending on how much thought you’ve put into your finances in general and life insurance in particular: Maybe you haven’t considered how insurance factors into your financial plan until this moment, or maybe you’re ready to actually start shopping.No matter where you are in your journey, here are a few first steps to get you started.
I hate to break it to you, but the truth is that your life insurance policy isn’t really about you. It’s about your family and other loved ones who would be impacted by your death.That’s why, if you haven’t done so yet, the first step you need to take is to actually talk to your family about life insurance. You might go about this two different ways, both of which are helpful: Talking to them about their life insurance, and talking to them about your life insurance.Talking to your loved ones about their own life insurance shopping experience can be what you need to give you the confidence to start your own journey. How did they get started? What sort of coverage do they have? Who do they turn to for advice? These questions can spark a discussion about how life insurance works for them, and how it can work for you. Your situation probably won’t have a one-to-one correlation with an uncle’s or sibling’s, but it’s a good starting to point to say, "Okay, here’s what worked for them, and here’s how I can tweak it when I start shopping."You should also talk to family members who would be financially affected by your death. If you have a partner or children, your death will have huge ramifications on their everyday life, not to mention their future plans. They should know your intentions regarding your life insurance, like who the beneficiaries will be, so they know to claim the money. And it can go beyond life insurance to cover your entire legacy plan.You can use the opportunity to talk about your family’s health history, too. Your family’s health, like any genetic disease that is prevalent, will play a role in your own life insurance costs. When you do start shopping, you don’t want to be surprised to find out that your premium rates are higher than you were expecting because you didn’t know your family had a history of, say, diabetes.Is it uncomfortable to talk about death and life insurance? Sure. But it’s also incredibly important. If you have dependents, being uninsured means leaving them vulnerable.
Maybe you’re ready to get covered, but you’re not sure how to take action. This is when it’s time to calculate your life insurance need.You shouldn’t guess at the amount of life insurance coverage you need. Unless you’re a really good guesser – like you always know the number of jelly beans in the jar at the state fair – you’ll either underestimate your need, leaving your loved ones unable to cover expenses, or you’ll overestimate and pay a lot more for your policy than you need to.Luckily, calculating your need isn’t hard. We’ve broken it down into five simple steps.
First, consider your debt. Not all debts will be passed on to your loved ones, but some, especially co-signed debt, will become their responsibility. If that’s the case, make sure there’s enough money in your death benefit so your family doesn’t get saddled with a mortgage or student loans.
Next, consider the everyday expenses of your dependents. This will most likely be children – will your partner need to hire someone to help take care of the kids? – but could also be aging parents who will also rely on financial protection.
Speaking of children, don’t forget about their future college costs. Higher education is expensive and will only get more costly over the coming decades. If you want your children to go to college, be sure that your surviving spouse will be able to afford it.
Then look at the future financial cushion you want to leave behind. Your partner may not be able to properly save for retirement without your income, and you can use the death benefit to ensure that they won’t struggle in their golden years because they didn’t have the support of your income.
Finally, don’t underestimate the cost of end-of-life expenses. The average funeral can cost between $8,000-$10,000, and you don’t want your family to have to pay that out of pocket.
Add these numbers up, take into account how long they need to be covered for (for instance, if you have a 30-year mortgage, you probably want your policy to last at least that long), and that will equal your life insurance need.(Pro tip: If you want to make this first step a quick one, use the PolicyGenius coverage calculator. We’ll add up all of your assets and debts and tell you what sort of coverage you should be looking at.)
But let’s say you’ve gotten the shopping prep work out of the way. You’re a go-getter, and you’re ready to actually buy term life insurance. This one’s for you.Life insurance is a long-term commitment. You’ll be paying a few hundred dollars a year for two or three decades. The last thing you want is to choose the wrong policy. That’s why the most important thing you can do before you ever apply for a policy is to compare them and make sure you’re getting the right one.Here are a few things you’ll want to compare:
The policy’s coverage. You need to know what’s in your policy with respect to the death benefit amount and the policy term length (how long it’s in place). You’ll have worked this out if and when you calculated your life insurance need, but it’s important to be sure that you’re comparing similar policies. You won’t get a good read on things if you’re comparing a 10-year, $50,000 policy and a 30-year, $500,000 policy.
The policy’s cost. A life insurance policy isn’t any good if you can’t afford to make your premium payments. The policy cost is the one of the more obvious things you can compare. Is one policy cheaper or more expensive than similar alternatives? One thing to keep in mind here is that while some carriers offer more competitive premiums than others, you won’t get a better deal by buying directly from the insurer. Life insurance rates are regulated and commissions are baked into the policy cost, so the same policy will cost you the same amount regardless of where you buy it.
The policy’s features. You can choose to add mini contracts called riders to your policy to tailor it to your specific needs. For instance, an accelerated death benefit rider lets you access the death benefit money early in very specific circumstances, and a term conversion rider lets you turn your term life insurance policy into a whole life insurance policy. Some riders come standard on a policy and some will add an additional cost, so be sure to know what riders are available to you, which ones work for your needs, and what they’ll ultimately cost you.
The life insurance company. Do you want to make sure a company offers a certain rider? Would you rather make policy updates online rather than over the phone? Are you concerned about financial ratings, customer service, and application turnaround times? These are things that you should take into account that you’ll need to find out by looking not at a specific policy, but the life insurance company offering the policy. Comparing companies is just as important as comparing policies, so make sure you know who you’re dealing with before you apply.
Shopping for life insurance isn’t as intimidating (or as expensive) as most people think it is. As you can see, there are a lot of ways to tackle taking the first step depending on where you are. The important thing is to make sure you do take that first step – otherwise, you’re leaving your loved ones unprotected.And don’t think you have to start alone! Our licensed experts can help you through the shopping process, whether you’re deciding whether or not you need life insurance, or you’re ready to apply today.
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