Be smart when purchasing life insurance by navigating the complex issues with several important questions in mind. Be sure to ask your agent the questions below because the topics may not come up easily in the normal conversation. We’ll discuss those key questions in just a minute.
Before you begin the huge task of absorbing the mind-numbing details about any insurance policy, there are some simple philosophical points to keep in the background of your thinking.
1. VALUE. Know that you are buying “value” and it’s not so much what you pay for, but what you gain in return.
2. START EARLY. Prices for insurance are the lowest when you start early.
3. BEST JUDGMENT. No one can guarantee what will happen tomorrow. Use your best judgment for the lifestyle that you expect with the information that you have today.
4. SURVIVOR. Think about the person and how they will benefit from your policy. The amount you choose will have to provide for your survivor’s needs. Larger policies cost less per thousand dollars. The beneficiary needs to understand that the money is for current and future expenses and not a spending spree. If this is not clear, put a precise organization into place that will outline the details of what the money is for, or set up a trust fund.
What the money is meant to pay for is basic living expenses which may include a mortgage payment to be paid in full or continued as monthly payments. Most people don’t realize that it takes about six months for Social Security payments for minor children to start coming in the mail, and money for living expenses will be required for that waiting time.
Also, an insurance payout will be paid after a funeral, not before although the funeral director will be reassured to know that there is a policy in place with funds soon to be available.
There will be guaranteed incidental costs like the dentist, doctor and education. The surviving spouse may have to quit work to take care of the household or for other reasons. This is an important point because they will no longer be adding to their Social Security earnings and their own retirement. The insurance should include an amount to replace the lost Social Security benefits. It is sometimes difficult to imagine needing an income at age 65 or 67 when you are 25-years-old.
Here are the key questions to ask when purchasing life insurance:
1. Ask how much insurance is enough for your needs. Your agent is experienced with statistics and current expenses for such things as funeral costs. Use the agent’s information along with your own research.
2. Ask what exactly what will your family receive.
3. Ask how soon you will receive the cash settlement in the event of death.
Your life insurance needs will change over your lifetime. Early on you will consider your dependents as a priority and later, when the nest is empty, your needs will change. Approach your insurance purchase just as you would with any other major investment.
Be smart, ask questions, be sure to get the answers to your questions and remember the value to your family.