What should I be considering when shopping for life insurance?
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Asked April 9, 2012
There are a number of considerations that should be made before you purchase a life insurance policy, including the amount of coverage you need, the financial outlook of the insurance company, the type of policy to buy, and more. The best way to get a life insurance icy is to do your homework before you buy the policy, to make sure that you are getting the coverage you need from a company you can trust.
Deciding how much coverage you need can be tricky. Financial advisors say that you should have life insurance in an amount that equals the amount you expect to earn up until your retirement, plus the value of all outstanding debts. So you would calculate the after-tax amount of your income if it remained level for the rest of your career, and then add in the amount of your mortgage, car loans, and any other financial obligations. You should also consider such things as the amount your children's college tuition and any amount that you feel is suitable to meet your final expenses.
There are two basic types of life insurance policies, permanent life insurance and term life insurance. Term life policies have predefined expirations, and are best used for things like mortgages and loans, college education and the like. Permanent life insurance will remain in effect for your entire life as long as the premiums are kept up to date. Term life policies are less expensive than permanent policies, but there no provisions for savings, while permanent insurance has a built-in tax-deferred savings account but comes at a higher price.
Once you know the type and amount of the policies you need, and it is not unusual to have multiple life insurance policies, you have to find a reputable insurance company. To do this, compare rates using free online insurance quotes to narrow down your field of choices. Once you have found a few companies that seem to meet your needs, narrow the list further by comparing the financial outlook of the companies on your list with a company such as A.M. Best, where the financial outlook of insurance companies are graded using an easy to understand letter scale. With the A.M. Best Company, for example, the highest rating is an A++, and any rating below an A- should be given careful consideration because they are on shaky financial ground and life insurance is not something you want to become useless after a few years of paying into the policy.
Answered April 9, 2012 by Anonymous