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8 Tips Before You Buy Life Insurance
Author: Andrew G Harris
1. What types exist?
- Term and permanent. Term insurance usually lasts for a period of 10-30 years, decided by you. Permanent lasts until death and also has a cash value that accumulates while you are still alive (and disappears if the death benefit is paid out).
2. Which type should I get? - Term is generally much less expensive than permanent. 80-90% of people are better off with term life insurance. If you buy life insurance (term) when your children are young, by the time the coverage ends (when they are in their late 20s or early 30s) they will not depend on your income any longer. Permanent is reserved more for special cases, such as those who look after someone with special needs or if they wish to leave an estate in excess of 2.5 million dollars (in this case the death benefit would pay for the estate taxes).
3. How much coverage will I need if I buy life insurance? - The amount you need is determined by information such as your salary, number of dependants (people that rely on your income), current debts (mortgage) and future debts (college education for your kids?). You want to make sure all this is covered with room to spare. With all of these totaled up (using an online insurance calculator), the general rule of thumb is to add 25-30% more.
4. Will I need a medical exam? - If you wish to buy life insurance by yourself, not part of an employer-offered group plan, this is important. If you are young or in good health, you probably won't need a medical exam. The older you are and the more coverage you wish to have, the more likely you are to need one.
5. How do I minimize my premium cost? - If you are a smoker or are overweight, your premiums will be inflated. Your rates can drop after being smoke-free for over a year. Since insurance companies use statistics such as BMI (body mass index) to calculate premium costs, losing weight will inevitably lead to lower premiums. Premiums often remain constant from the time that you initially buy life insurance.
6. Does the death benefit ever diminish? - In most cases, it will never decrease. One variation of variable life insurance has decreasing death benefits. If you are about to buy life insurance, it is always good to ask such a question.
7. How often do I pay my premium? - Premiums are generally paid on a annual (and sometimes semi-annual) basis. Often these premiums can be paid online.
8. Will the beneficiary of the policy have to pay tax on the death benefit? - Beneficiaries usually do not pay taxes on death benefits.
Go to the Buy Life Insurance website to learn more.
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