Picking out a life insurance policy can be difficult. There are many variables to consider, even more so when considering purchasing family life insurance. There are individual plans for yourself, joint plans for your spouse, and plans that include your children.
However, the consequences of not having a life insurance plan in place for when the worst comes to pass can be severe. Survivors would be burdened financially with the costs associated with funerals, as well as any other debts. This would also impact any children in the family, as money that would have gone towards their basic needs and future educations will now have to go towards debt that was incurred by the deceased.
What to Think About When Purchasing Life Insurance
One of the first things to consider when buying a policy is how long you’ll need coverage. Policies are either temporary, lasting a set time period, or lifetime. Depending on your situation and financial goals, either one may be the optimal fit. For example, you can buy a temporary policy to cover the length of your mortgage to ensure it is taken care of. Alternatively, if you would like permanent income replacement for your spouse or children in the event of your passing, a lifetime policy may be the best option. Additionally, lifetime policies have a cash value that is designed to increase as time passes, and a death benefit that is paid at the time of passing.
Next, you’ll want to calculate the amount of coverage you need. A common method is the DIME approach, which is an acronym for debt, income replacement, mortality, and education. Debt includes items like credit card bills, mortgages, and auto loans. When considering income replacement, the main determinant will be how much money you want to leave behind for the survivors. Mortality costs are associated with fulfilling burial wishes. Lastly, education costs include financially supporting tuition and schooling for any children in the family.
Choosing a beneficiary for these benefits is another factor you’ll want to keep in mind. Avoid naming a minor, as they may not be able to receive the benefits. A good practice is to have a formal plan in place that states how these will be used. This mitigates the possibility of familial conflict when determining how resources will be allocated.
Speak with an Adviser
Once your goals for a policy are laid out, you may want to reach out to a life insurance adviser, who can guide you through the application process and ensure that the plan you purchase is the right one for you and your family.
