Life insurance can be difficult to understand in the best of times, and downright impossible to wrap your head around in the worst of them – especially for first-time buyers. Thankfully, it doesn’t have to be that way forever. Read this blog and get a better understanding of life insurance and why you should consider purchasing it, then check out our four tips every first-time life insurance buyer should know before making a purchase.
What is Life Insurance?
In the most basic sense, life insurance is designed to provide a lump-sum payment to your loved ones in the event of your death. This is often called a “death benefit,” and has the ability to help provide your family with continued financial security after your death.
However, not all life insurance policies are the same, and there are two main types of life insurance policies available to consumers: term life and whole life.
Term life insurance is a type of life insurance that is designed to provide the payment of a stated death benefit during a specified term to the policy’s beneficiary.1
However, if the policyholder dies after or before the term, there is no payout. In other words, term life insurance provides a one-time lump-sum payment to the policy beneficiary only in the event that the policyholder dies during the designated term period.1
Term life insurance is commonly offered by employers to their employees, and is frequently associated as being an affordable life insurance policy.1
Whole life insurance, on the other hand, can provide coverage for the life of the insured – not just over a designated term.2
In addition to providing a death benefit, which term life insurance policies have, whole life insurance often also includes cash value.2
Cash value is built by the policyholder by making regularly scheduled premium payments or by making payments more than the scheduled premium. Cash value can be used in a number of ways, with the policyholder using the cash value they have accumulated to supplement their income, pay off a loan, or whatever they need.2
Why Consider Life Insurance
There are a number of reasons to consider purchasing life insurance. One of the most important reasons to consider purchasing would be if your family is partially or entirely dependent on your income for survival.
In the event of your death, would your family be able to continue living under the same lifestyle they’ve experienced with your support?
Life insurance can help provide continued financial security for your loved ones in the event of your death, and can help pay for an array of costs.
To keep it simple, life insurance can help provide a plan for your family's finances in the event of your passing by helping pay for things like:
- Burial expenses
- Mortgage payments
- Medical bills
- Debt management
- And more
4 Tips for First-Time Buyers
Now that you know a bit more about life insurance and some reasons to consider purchasing it, let’s discuss some tips for purchasing life insurance for first-time buyers. With different types of life insurance to choose from and a number of different providers to choose from, navigating your options can be a bit tricky – which is where these tips come in.
Tip #1: Determine the amount of coverage you need.
You likely don't need millions of dollars in life insurance coverage for your policy to be effective for your needs. To determine the amount of coverage you need you should first take into account what you can afford – consider your rent/mortgage payment, car related expenses, utilities, internet, and the needs of your family. By doing so, you’ll be able to make the most informed decision on what kind of life insurance you need, and how much you can realistically afford.
Tip #2: Do your research.
Now that you know what you need and what you can afford, it’s time to do your research on what kind of policy is right for you and your family. You will generally have two options of life insurance – term life insurance or whole life insurance – look into your options and decide what type of policy fits your needs and your budget.
Tip #3: Expand your vocabulary.
Life insurance can be confusing, and the easiest way to navigate it is by getting to know what it entails. Becoming familiar with terms like “premium,” “policyholder,” “cash value,” “beneficiary,” and more can help you easily navigate your policy options and gain a better understanding of what is being offered in any life insurance policy. Take a look at
Tip #4: Consult a financial professional.
There’s no shame in getting some help from the experts – that’s what they’re there for after all! Few are better equipped to advise you on life insurance than someone who has a detailed knowledge of your unique financial and familial situation. With their experience, they may be able to guide you to the perfect policy while saving you money, putting them in the best place to help ensure your family’s continued financial security for years to come.
While life insurance may not seem like an exiciting purchase, parents and caretakers can feel relieved knowing their family's financial future will be more secure during the hardest time of their life. Having this finanical protection can help take off some of the burden so your family can focus on what matters most.