Life insurance is one of the most important financial decisions you have to make. It deals with the most personal and vulnerable aspects of your private and financial life. However, even though it’s this important there’s still a surprising amount of confusion, taboos, and skepticism about it.
The matter of fact is that it’s a contract just like any other and you should treat it as such. It should leave both you and the insurance company better off, with a clear explanation of what’s everyone’s responsibility.
Do you need it?
This is the first and the most important question to ask yourself. You’re going to make monthly payments for a pretty long time, so think long and hard about the need to do so and the reasons behind it. If you have a spouse and children, chances are that you’ll need to buy life insurance in the case of something happening. The same goes if you have parents who are financially dependent on you. However, if you are retired or have a fund prepared for retirement and no one depends on you financially, you can save yourself both the money and the trouble.
There are four key players involved in a life insurance contract and they should all benefit from it in some way. The insurer, meaning the company, is responsible for paying a certain amount in case of a death. The owner of the policy is the person who makes monthly payments to the insurer. The insured is the person upon whose life the policy is based. It’s important to note that these two do not have to be the same person. And the beneficiary is the one who receives the money in case something happens.
The types of policies
There are numerous types and subsets of insurance policies, but they can roughly be divided into two categories. One is known as term insurance and it’s based on the probability that the insured will die within the given term. When deciding on a policy, the company will provide a life insurance guide that helps you understand what factors come into understanding this probability. It’s mostly based on your age and health status. The other type, called permanent insurance, comes with a savings mechanism and can last into perpetuity.
It’s important to treat life insurance like a risk management tool. It is not designed to be a form of investment. The tax code doesn’t treat it as such and there are much more sensible ways to invest your money with better and faster returns. The goal of the insurance policy is simply to help your family in the case of sudden death. This isn’t a pleasant turn of events to think about, but that’s what you should base your insurance choice on. It should cover the funeral expenses and get your family on their feet after you’re gone.
The last thing to think about before signing any papers is how fast you can get out of the whole thing. You’re going to have to leave something on the table. It could be one of two things: coverage or your money. Ask questions and think about the details of it all – when do you need to notify the company, are there any hidden fees and most importantly how to avoid being without a policy for a while.
Life insurance is serious and important business, treat it as such and you’ll be on the safe side.
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