Saturday, May 6, 2017

Key tips for first time life insurance buyers

Looking to buy life insurance for the first time? If so, youre probably asking yourself questions such as "How much do I need?", "What kind of policy is best?" and "Which company should I buy from?" Theres no question buying life insurance for the first time, like any other new experience, can be more than a bit daunting. Below are six important tips that we hope will make the process smoother, eliminating frustrating false starts and unnecessary bumps in the road.

UNDERSTAND WHY YOU NEED IT.
While most people may need life insurance at some point in their life, dont buy a policy just because you heard it was a good idea.

Life insurance is designed to provide families with financial security in the event of the death of a spouse or parent. Life insurance protection can help pay for mortgages, a college education, help to fund retirement, provide charitable bequests, and, of course, is a key element in estate planning. In short, if others depend on your income for support, you should strongly consider life insurance.

Even if you dont have any of these needs immediately, you still may want to consider purchasing a small "starter" policy, if you anticipate you will have them in the future. The reason: The younger you are, the less expensive life insurance will be.
DETERMINE THE AMOUNT OF COVERAGE YOU NEED.
The amount of money your family or heirs will receive after your death is called a death benefit. To determine the proper amount of life insurance, online calculators can be helpful. You can also get a ballpark figure using any number of formulas. The easiest way is to simply take your annual salary and multiply by 8.

A more detailed method is to add up the monthly expenses your family will incur after your death. Remember to include the one-time expenses at death and the ongoing expenses such as a mortgage or school bills. Take the ongoing expenses and divide by .07. That indicates youll want a lump sum of money earning approximately 7% each year to pay those ongoing expenses. Add to that amount any money youll need to cover one-time expenses, and youll have a rough estimate of the amount of life insurance you need.

As useful as calculators and rough estimates are, there are some things they dont do.

They cannot provide you with any final answers. Calculators only allow you to perform "hypotheticals," recalculating and generating new results as you make and input new assumptions. Using these tools and educating yourself on the workings of life insurance and other financial products, however, can help you feel more comfortable when discussing your needs with such professionals as a New York Life agent.

You can use any number of planning tools to get an idea of the amount of coverage you’ll need for your policy. Use our online calculator, for example, or use a formula to figure out how much you need. An easy place to start is by multiplying your annual income by the number of years left before your retirement benefits kick in.
FIND THE RIGHT TYPE OF POLICY.
Once you figure out how much coverage youll need, you can think about the best kind of policy to meet your needs.

You have two main options: term life, for a more affordable premium, or permanent life, for more comprehensive coverage that can add cash value. But you have a lot of options to explore.
LOOK AT THE QUALITY OF THE PROVIDER.
An insurance policy is only as good as the company that backs it.

You want to make sure you choose a company you can rely on to be around for as long as youll need your coverage, and which invests your premium in a highly prudent manner in order to pay the claims of its policyholders.
CONSULT A FINANCIAL PROFESSIONAL.
A financial professional can help you factor in financial considerations, your needs, and your familys needs.
INCREASE YOUR VOCABULARY.
Life insurance can be confusing, with terms like "premium," "dividend," "beneficiary," and many more.

We have put together a glossary of these terms to help you understand this whole process better.

3 Tips for Buying Life Insurance for the First Time

Buying life insurance can be scary! You’ll see endless options in any insurance guide which can be dizzying. Also, you’ll be forced to think about your own death during the evaluation process which, as you can imagine, is never fun. Since this process can lead to high stress, you will want to be prepared and ready to move through it efficiently and effectively without making any errors. Once you purchase the right life insurance policy, you will feel much better about your current situation, as well as the financial safety of your family should you pass away.

The 3 tips below are geared towards first-time life insurance buyers. That being said, anybody in the market for a policy can take advantage of this advice:

1. Find the right type of policy. Many first-time buyers think that all life insurance policies are the same. Nothing could be further from the truth. The two main types of policies are whole and term. You will also come across less common options, including universal and variable life insurance. To be sure of your decision, consider them all.

Whole life insurance covers you until the day you die. When you pass on, your beneficiary will receive your death benefit. With term life insurance, you are only covered for a specified period of time. If you outlive a term life insurance policy, it expires and nobody receives your death benefit. At this point, you will either purchase another term policy or do without.

2. How much coverage do you need? Along with the type of policy, you need to consider how much coverage you need. Some experts suggest that your death benefit be at least six to eight times your annual salary. So, if you earn $100k per year, you should have a life insurance policy worth at least $600k. While this sounds multiple of annual salary sounds good in theory, it can be difficult to stick with this formula. Do you really need this much coverage? Do you need more than this? Does it fit in with your budget?

Nobody really knows for sure how much life insurance coverage they need. While you can use a standard multiplier as a starting point, you should discuss this with your family and financial advisor to determine the proper amount. This aspect can vary a lot based on the person’s unique situation.

3. Which company are you going to buy from? This is a detail that is constantly overlooked. Some consumers think that all life insurance companies are created equal. This is not the case now, and never will be in the future. Simply put, a life insurance policy is only as good as the company that you buy from. There are several agencies that rate insurance companies based on quality of investments, financial standing, and other related details. The four major rating services include: A.M. Best, Fitch, Moody’s, and Standard and Poor’s. Among other things, you want to make sure you are not paying too much for your insurance.

As a recent first time buyer of life insurance, these are the three areas where I focused most of my time and attention. While there are other more complex issues to consider as you get deeper into the process, these are the three key areas that you need to be very cognizant of when making your decision.

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