How to Buy Life Insurance

How to Buy Life Insurance

by Rebecca Hall on 15 Feb, 2011

If you have too little, or worse, no life insurance, your family could become financially devastated should you make an early exit. Knowing how much you need and what the best type of life insurance is for you is a critical decision.

First of all you need to determine whether you actually need life insurance. You don’t want to waste your money so it is important to understand what exactly life insurance covers. Put simply, life insurance covers a loss of income. If you do not have a spouse, family member or children who depend on your income then there is no need to insure yourself. Similarly, if you are already well off, your family may not need your income to be covered upon your death.

It is important to determine how much coverage you will need. It is best to start by calculating how much your dependants will need, and for how long they will need it. Losing a loved one is always difficult both emotionally and financially and the last thing any one will want to think about is money.Once you have determined the period through which you believe your loved ones will need financial help, you should then calculate any expenses you believe could be incurred. From housing costs and university fees to clothing, food and drink. By putting all of these figures together you will be able to start determining how much coverage it is that you need.

Insurance is protection and you should make sure that you choose the type of coverage that will best protect you. The more responsibilities that you have, such as a mortgage and children, the more protection you will need. When your children have grown up and the mortgage has been paid, you will likely require less protection.

Term life insurance is a relatively simple way to go. You only pay for the specific term that is decided at the beginning of the policy. When you stop paying, you stop being covered and so overall is tends to be a cheaper option than whole life insurance.

Whole life insurance does have its drawbacks. The premiums are usually more expensive, especially when the policy first starts. At this stage you will mostly paying commissions rather than building cash value. Also, if you have to cash out the policy early, you may have to pay a surrender fee.

It’s important that, as with any financial decision, you shop around for the life insurance you decide to get. It may be more expensive with one company over another and it is always recommended that you take the time to choose the one that is right for you.

About the Author

Rebecca Hall

Rebecca Hall worked as an independent mortgage adviser for 10 years before turning to financial journalism full time. She has strong links to the CAB advising families on mortgage refinancing.