If you do not have life insurance and you die prematurely, your family can quickly be in a financial mess. The right policy for you will meet two criteria: It will provide adequate protection for your family; and it will come with a monthly premium that does not place an undue hardship on your family today. Because life insurance is a cornerstone of financial planning, careful investigation of the available options is crucial.
Step 1
Determine your priorities. Some people may only need to make sure their funeral is covered. But if you have dependents, you will want to make sure they can maintain their current lifestyle if you should die. When buying a policy, assume that you will die today, and determine how long your dependents will need support. For example, if you have a child who is two, and your goal is to support the child through college graduation, you should buy at least a 20-year policy.
Step 2
Decide how much you need. A basic formula involves totaling up your current and future needs, then subtracting any existing resources such as savings, your survivors' expected earnings and any Social Security checks that your children and spouse may become eligible for, according to the Life and Health Insurance Foundation for Education.
Step 3
Decide on either term insurance or a permanent policy. Term insurance simply guarantees a certain payout if you die within the term--which is a set number of years, such as ten, 15 or 30--provided you pay the premiums as scheduled. Permanent insurance, such as a whole-life policy, includes a cash-value component that grows over the years. For the payout offered, term policies are generally substantially cheaper, according to SmartMoney magazine. For most people, the magazine says, a term policy is best.
Step 4
Apply for a policy. The process usually requires you to fill out a thick packet of paperwork, including plenty of questions about your health and family medical history, according to Insure.com. And you will probably have to take a medical exam, which will include giving urine and blood samples. In all, according to Insure.com, it can take 30 to 45 days to find out whether you are approved for life insurance and, if you are, how much the premium will be.
Step 5
Consider a broker. Because life insurance is a complicated topic, an agent or broker can be helpful in explaining the ins and outs of various options. While term insurance is fairly simple and you can readily shop for it online, the intricacies of permanent insurance mean that brokers more often play a role in selling this type of insurance, according to Insure.com. Additionally, a broker who works with numerous insurance companies will be familiar with their underwriting requirements. Such a person can steer you to a company likely to offer you a good deal in light of your particular health and other circumstances.
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