Life insurance is essential if you are the primary provider for your family, have young children, or are getting married. It's a financial lifeline for your family's future should the unexpected occur. But buying life insurance can be complicated—it even has its own language. So, let's break down the process. Here are five things to consider before purchasing life insurance.
1. Assess Your Life Insurance Goals
Your purchase of life insurance can serve multiple purposes. The Philippine Life Insurance Association (PLIA) notes that life insurance is beneficial in these situations.
- Provide financial support to your family, who may struggle without it after you're gone
- Bestow your dependents with the minimum standard of living
- Ensure your child's education is taken care off
- Lift the financial burden if debts or taxes need to be paid
2. Understand the Types of Life Insurance
Life insurance comes in various forms, including term, whole, and universal life. Each type has its features, costs, and benefits. The following are considered permanent life insurance products.
Term life
This type of insurance covers a specific period, usually 10, 20, or 30 years. Your beneficiaries receive a financial payout when you pass on during the term. This insurance money is often used to take care of final arrangements or to cover living expenses for loved ones.
Whole life
This plan covers you for the rest of your life, which means until 100 years old for some policies. It typically has a fixed premium, the amount you pay for a specific period.
Apart from guaranteed death benefits, whole life insurance offers cash value, the savings component. You or your beneficiary can access this cash value under specific conditions. For instance, some policies guarantee a certain amount after a particular period, while others allow you or your beneficiary to borrow against or withdraw the cash value while still living. Because of the cash value, you pay higher premiums with whole life insurance coverage.
Variable universal life
Unlike term and whole life insurance, where premiums are fixed, variable universal life (VUL) allows you to adjust death benefits and premium payments within certain limits based on your needs.
VUL attracts much discussion in online communities because of its potential to become a nest egg. Policies under VUL allocate cash value to various investment options the insurance company offers, such as stocks, bonds, and money market funds. However, as the cash value is linked to the market, its value fluctuates based on the performance of the investments. Although it has the potential to grow, high cash value isn't guaranteed. It can be lower than expected if the investments perform poorly in the market.
3: Determine Your Budget for Premiums
PLIA recommends buying life insurance coverage equal to or seven times your annual gross income. You'll have to weigh that amount against how much premiums you can afford to pay. So, assessing your financial situation, liabilities, and dependents is essential.
The Insurance Information Institute (III), a non-profit organization that promotes insurance education in the U.S., suggests the following tips to calculate insurance coverage.
- Check the financial resources available to your dependents upon your passing. These can include social security benefits and group life insurance, such as one provided by an employer. It's essential also to note when your dependents can receive or access these resources.
- Determine your dependents' financial needs after you pass on, such as final expenses, debts, and income.
- Subtract your dependents' financial resources from their needs to determine how much coverage to buy.
Buying a life insurance policy early can lock in a lower price for your premiums, generally based on age and health.
4. Review Policy Riders
A "rider" is an optional add-on to an insurance policy. It can give you more coverage or special benefits not included in the standard policy. Riders targeting critical illness or disability enable you to tailor-fit your policy to suit your lifestyle and other potential risks.
Apart from riders, look for additional perks or incentives. For example, AIA Vitality is a wellness program that offers rewards for living healthily, such as discounts at partner establishments.
5. Review the Fine Print With an Expert
Purchasing insurance that aligns with your goals and budget can be challenging without assistance. You must pay attention to exclusions, limitations, and conditions that may affect the payout. An expert, like an AIA Life Planner, can help explain confusing terms or conditions further. They can also help you select a suitable plan for your needs.
Trust is a crucial factor in insurance. Choose a reputable insurance company, one with the financial strength to ensure they can fulfill their obligations in the long term. Customer reviews can also provide clues to a company's reliability. You can also compare quotes from multiple insurance providers to compare coverage options and premiums.
Buying life insurance can be a smart investment for securing your family's future. It can provide invaluable assistance when you need it the most. So, take the time to find the best value for your circumstances because the result will bring priceless peace of mind.
