Life insurance policies serve a single and common purpose. That purpose is to protect your dependents and loved ones financially just in case you lose your income generating capacity either through an accident that results to permanent paralysis, or loss of limbs, worse or death.
You may get bombarded by different life insurance policies and their features. The insurance industry has evolved a lot and companies have added different features to their policies to make it more lucrative and look “better” than other policies. However, the better life insurance policy is not the one that has the most benefits, but is the one that suits your needs the most. How long do you need an insurance policy? How much coverage do you really need? These are just two of the questions you need to answer.
Before learning the tips on how to effectively compare life insurance policies, you must first understand the reason why you need an insurance. Yes, it’s for income protection but apart from that, when do you really need one?
You’ll need an insurance if you haven’t saved and invested enough yet for your retirement and for your family’s future. Financial planning experts suggest you must have a savings worth at least 10 years of your annual income. That means, if you’re earning $100,000 a year, you must have at least a million dollars in your savings for you to be financially free.
What’s the logic behind that? Your savings are meant for you and your loved ones during hard times. Even if you lose your income generating capacity, you and your family can live for the next 10 years. It’s quite impossible for you and your family not to recover within 10 years.
If you haven’t saved at least 10 years of your annual income, then you definitely need a life insurance. How much coverage do you need? Calculate your annual income, multiply it by ten, and that’s the coverage that you’ll need.
Since there are a lot of insurance companies nowadays and most of these companies offer different plans and features, which one are the best for you? Here are some tips.
1. Check the reputation of the company. Stability is very important. The more stable the company, the better it is. Go for companies that has been in operation for at least 20 or 30 years. These companies will not survive if they don’t have lots of clients and if they don’t provide good service. Use the internet and ask people whom you know have life insurance policies. They can lead you to the best deals.
2. Check the premium vs coverage ratio. Calculate the premium and coverage ratio by dividing the coverage from the premium. The larger the quotient, the cheaper the policy. A tip in calculating ratios. If you use monthly in one policy, use monthly in all the rest. You can’t compare a monthly premium to an annual premium.
3. Check the quality of service. This is very important. Quality of service means ease and flexibility at the mode of payments, benefit claims, and customer or client service. Many insurance companies fail on this part because they are too strict and many policy holders get disappointed by their insurance companies because of the hassle. In knowing how good the service is, it is best to call or visit any representative the company has. Ask questions and air out concerns so they can clear it out to you. Many policy holders buy a plan without clearly knowing the benefits that they can get and without understanding the mechanics on how their policy works. Some companies also don’t disclose everything just to get a sale.
4. Scope of coverage. Some insurance companies will cover a small number of cases while some are flexible and broad. Pick the one with the widest scope. For example, some companies don’t cover people who are in risky occupations such as sky diving, mountain climbing, scuba diving, and fighting sports like boxing and martial arts. Some cover these occupations for an additional fee or they generally cover it at a higher cost. If you don’t engage in any kind of activities, pick the cheaper ones but if you do, get those that include such occupations or activities. It is better to be sure at the start and end up with nothing because you didn’t know that the policy you got doesn’t cover the things you do. It happened a lot of times already.
In buying a life insurance policy, it is always better to be sure before buying one than later on realize that what you got is not what you really need. Many people commit this mistake by getting to drawn to the features and benefits and deciding right away or they simply can’t say no to their agent.
Scout for insurance companies and check their policies, cost of premium, coverage and the features. The best way to start is to assess your own personal finances and what do you need. You can’t buy the best life insurance policy if you don’t know what you need in the first place.