A Beginner’s Guide to Life Insurance

By Joseph Baker

Shopping for life insurance for the first time can be an overwhelming and confusing process. With so many options available, it can be tough to figure out exactly what you need. The good news is that finding affordable life insurance coverage is probably easier than you think. Here are some need-to-know basics to get started.

Acknowledging the Comforts of Coverage

One of the most popular reasons to buy life insurance is to provide some financial support to a spouse, child, or other loved one you may leave behind. The person who receives the benefit of your coverage is known as your beneficiary, and that person can use your life insurance money for anything, including bills, funeral costs, lost income, education, or even general living expenses.

Some people want life insurance only until they reach a certain age or financial milestone. Other people seek lifelong coverage that also functions as part of their financial portfolio. Whatever your personal plan is, there are policies available to meet your needs.

Assessing Your Needs

If you’re shopping for life insurance, you probably have some concerns about your family’s financial well-being in the event of your death. What’s weighing on your mind? Start by figuring out which specific costs you’d like to help alleviate and then gather quotes to see how much coverage you can realistically afford — without straining your monthly budget.

Coverage calculators can help as a guide, but determining how much coverage you really need is a very personal process. To get started, some industry experts suggest that you consider all your personal debt, estimate funeral expenses, and attempt to double or triple your annual income.

Knowing Your Options

Two main types of life insurance exist: term life and permanent life, also known as whole life. Here’s the gist of how each option works.

• Term life insurance covers you for a certain period of time, such as 10, 20, or 30 years. If you pass away during the coverage period, your beneficiary receives the face value of your policy. This type of coverage is usually less expensive upfront than whole life insurance, but premiums may increase gradually within the term and at the end of each term to correspond to your age at that time.
• Permanent life insurance stays in effect throughout your entire life and often involves an accumulation of cash value. Due to the extended period of coverage and additional features such as being able to access your accumulated cash value, permanent life insurance tends to be more expensive initially than a term policy, but rates usually stay the same over the life of the policy.

A third type of coverage, called guaranteed acceptance life insurance, is also available through many insurance companies. As implied, anyone who applies for this type of coverage can usually get it.

Paying Your Premium

Aside from the specific type of coverage you want and how much insurance you buy, the three main factors that usually determine how much you pay for life insurance are your age, family medical history, and current lifestyle habits. This is why coverage tends to be less expensive for younger people and for folks who maintain a healthy lifestyle.

Be very careful not to misrepresent your lifestyle or medical history on your life insurance application to get a lower rate. If you’re a smoker, admit it — even if you’re trying to kick the habit. Stating you live differently than you do could end up negating your entire policy due to the life insurance contestability period.

Finding a Carrier

Fortunately, the Internet makes it possible to quickly and conveniently learn more about life insurance and gather quotes from many different insurance companies. Plus, company insurance agents are usually more than happy to answer any questions you might have about certain types of coverage.

Be sure to check the financial ratings (A.M. Best or Moody’s Investors Service) and consumer approval metrics provided by trusted consumer advocacy groups for any insurance company you’re considering for your coverage.

With a little bit of research and work to assess your needs and budget, you can find a life insurance product that’s right for you and your family.