Updated: November 2016
Maybe a new baby sparked thoughts about the future, or perhaps you want to help protect your family's lifestyle. Whatever your reason, life insurance may be an important part of your financial strategy and a safety net for your loved ones. The benefits from a life insurance policy may help your family cover expenses like mortgage payments, college tuition and day-to-day expenses, says Life Happens. Some policies even have a savings component, called cash value, that you may borrow from in case of an emergency.
If you're purchasing life insurance for the first time, knowing the basics as you start your search can be helpful. Here are some things to keep in mind as you consider life insurance policies.
A term life insurance policy may be useful if you want coverage for a specific time frame â€” maybe until your kids graduate college or your mortgage is paid off. The Insurance Information Institute (III) notes that term policies typically provide coverage for a set period, usually from 10 to 30 years. If you pass away during your policy's term, your beneficiaries will receive the policy's benefit. Term life insurance policies are often very affordable because they only provide coverage for a designated time frame, states the III.
If you're concerned that your needs may change or you'll eventually want permanent coverage, talk to your agent about getting a "convertible" term policy. Convertible term policies provide the opportunity to convert to a permanent life insurance policy, although it's important to keep in mind that your premiums will likely increase with the change.
With perrmanent life insurance, as long as you continue to pay premiums, the policy will remain in force, says Life Happens. Permanent life insurance may be a good choice if you want to have coverage for the rest of your life. The III says premiums are based on your age and health at the time of purchase, and they typically remain the same over time.
In addition to the death benefit, permanent life insurance also provides a savings element, called cash value. The III states that cash value may be available for you to borrow from1 or to help pay premiums.
Premiums for permanent life insurance tend to be higher than term policies, due to the cash value feature and the length of coverage, says the III.
Depending on the type of permanent life insurance policy you purchase, there may be additional options and benefits available. For example, whole life insurance typically guarantees a minimum amount of interest on the cash value. Universal life insurance may offer the flexibility of adjustable death benefits and premium payments. A variable universal policy may offer the flexibility of universal life as well as a choice of investment options for your policy's cash value.
Your agent can help explain the types of permanent life insurance policies so you can decide if one of them might be right for you.
In addition to choosing what type of life insurance policy you'd like to purchase, you'll also need to determine how much coverage you'll need. It's a good idea to consider factors such as your income, age, current expenses and any potential future expenses. It's also good to plan for final expenses, including funeral costs and estate taxes, says the III.
Choosing to purchase life insurance is a big decision, and it's important to choose a policy that fits your family's needs. If you have questions, a local agent can help you select a life insurance policy that's right for you.