The days of door-to-door life insurance salespeople are long gone, but increasingly, so are those of sitting down with an agent to talk about your options for insurance. It’s getting more and more common to purchase life insurance online. This is a quick, convenient way to make sure you get the coverage you need. The drawback is that you aren’t sitting across from someone you can ask about what you need, but the advantage is that you can research at your leisure and without feeling any pressure to buy.
What Is Life Insurance?
How does life insurance work, and who really needs it? In its simplest form, you buy a policy and pay a monthly premium. When you die, your dependents receive a payout to help make up the loss of your income as well as to pay for your burial and any debts. In practice, life insurance can feel a lot more complicated because there are so many choices.
The first choice many people must make is whether to purchase it at all if they do not have dependents. If you do not have significant debts, have enough money in the bank to pay for your burial and no one is depending on your income, you may not need a policy. However, buying one while you are young and healthy can lock in your premiums at a low rate, and this can benefit future dependents.
Term or Permanent?
All life insurance is either term or permanent. Term is the most straightforward kind of life insurance you can buy. Term refers to the fact that it is for a certain period of time. This could be as little as just a year or as long as 35 years or more. With term, you buy a certain amount of coverage, and that is what your estate or dependents receive when you die. The disadvantage is that premiums can rise if you start a new term, but despite this, some financial advisors say this is the best choice for most people.
Permanent only ends when the owner dies or stops paying the premiums. There are a huge number of different kinds of permanent policies. Some operate partly as investment vehicles. Premiums are generally higher for permanent and may be variable for some types.
How Much Do You Need?
The general financial advice is to purchase life insurance that will pay an amount that is six to 10 times your yearly income. This can provide your dependents with several years of security. However, every situation is different, and you need to determine what the needs of your family and your estate will be.
Some types of permanent life insurance are set up like mutual funds, but the final payout could increase or decrease based on what investments you choose. If it is critical that your family receive a minimum amount, be sure that you purchase a policy that will at least provide that much. Another consideration is whether you want to be able to borrow money against your policy.