Updated: May 2016
Buying life insurance is an important decision, but it can also prompt additional questions. From deciding how much coverage you might need to naming your beneficiaries, a lot of thought goes into purchasing a life insurance policy. Here are some important questions to consider when you're choose a life insurance policy.
The amount of life insurance you may want depends on a number of different factors. You'll likely want to consider your current financial obligations, such as your mortgage, debt and childcare. You may also consider your family's comprehensive future needs, including educational costs and retirement funds. These considerations, along with the length and type of policy you choose, can help you estimate the amount of life insurance that might be right for you and your family.
You can choose from two basic categories of life insurance products: term life insurance or permanent life insurance. Generally, with a term policy, you select the length of time and amount of coverage, and your payments remain the same over time. Permanent policies typically offer lifelong protection (as long as premiums are paid) and may allow you to build cash value. Your personal circumstances and financial goals will help determine which type of policy may better suit your needs.
If you've decided to purchase a permanent life insurance policy, you'll need to choose which type of permanent life insurance is best for you. Four types of permanent policies — whole, universal, variable universal and indexed universal — typically offer a built-in savings component (called "cash value"). The policies vary in how the cash value is invested and whether it may affect the policy's benefits or premium payments.
When you purchase a life insurance policy, you'll need to select a beneficiary who will receive the policy's benefits if you pass away. The beneficiary can be a person, such as a spouse, sibling or child. Your beneficiary may also be an entity, such as your alma mater or favorite charity. Choosing a beneficiary can be a very emotional decision, but it's an important one that helps ensure your policy's benefits are dispersed according to your wishes.
According to the Insurance Information Institute (III), your life insurance coverage may lapse if you miss a premium payment on a term life policy.
The III notes, however, that you may have a few options if you can't pay a premium on a permanent policy. You may be able to use the policy's cash value toward the premium, which would allow you to remain covered. Some policies may also allow you to temporarily stop or reduce your premium payments. In order for these options to be available, however, the policy must have enough cash value accumulated to cover the payment amount. If you cannot access these options and cannot pay the premium, your coverage may lapse.
Insurance policies typically have a grace period to prevent a policy from lapsing if you are late on a payment. This grace period is determined by state regulations, and it may also vary among insurers and policies. Check your policy or ask your agent to be sure you know what your grace period is and when you need to pay the premium.
It's important to make sure you're getting the best coverage for you and your loved ones, and asking questions upfront can help steer you in the right direction. A local agent can also help guide you through the process and answer any questions that pop up along the way.