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12 Basic Life Insurance Questions Part One
Purchasing a life insurance policy can be confusing, there are a lot of products on offer and sometimes the options can make a buyer confused. Asking basic questions and finding out their answers can go a long way to clearing up the confusion. In this two part post we ask and provide general answers to the first six of twelve key questions, which should be answered before committing to a policy.
1. When Does One Need Life Insurance?
The short answer is if one has dependants, especially children, then they need life insurance. Another point in time where life insurance becomes critical is if one purchases a home using a mortgage and has a partner that is liable for the debt in the event of their death, then one should have some life insurance cover to mitigate the amount owed should the primary income or joint income earner pass away.
2. Where Or From Whom Is It Best To Buy The Cover From?
A lot of companies offer life insurance policies; the internet is a great tool for comparing different providers, the cost of the premium and the extent of the cover. For people who are confused about the type of insurance they should buy, since there are many types, they should look to an insurance broker, who will be able to clearly explain the different types and which would be best.
3. When Is It Best To Apply For Cover?
The earlier the better, the younger the person buying life cover, the cheaper the premium is, largely because the probability of death increases the older one gets. Insurance companies are acutely aware of this fact, so they charge more to insure people the older they get.
4. How Much Cover Does One need?
For those looking to ensure their partners are not saddled with debt such as mortgage’s they will need to purchase enough insurance cover to equal the outstanding debt. There may be other debts beyond mortgages that may also require cover. If the goal of the insurance cover is to act as a replacement for the income lost for the insured’s family, then some calculations will need to be made as to exactly how much cover will be needed. Most insurance company websites offer a calculator which allows you to obtain rough estimates of how much you need based on some basic inputs.
5. How Long Should One Be Covered For?
The answer to this depends on the what the cover is being used for. If it is to pay off a mortgage for example, then cover should be take for the duration of the loan, which typically lasts 25 years. If the cover is being obtained to protect dependants such as children, then cover should last until they have left home or completed their education.
6. What Kind Of Policy Is Best?
This again is dependent on what the individual is looking to have covered. For those who want to ensure their debt obligations such as mortgages are paid, a cost effective insurance policy would be a decreasing term insurance, one whose payout falls in line with the outstanding owed on a mortgage as it gets paid off. Again the most important thing governing what type of policy one should obtain is what exactly the individual is planning the cover should be used for.
For a more detailed discussion on the types of policy and what situations they should be used in see the article Five Different Types Of Life Insurance Policies And What They Mean For Individuals
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[...] We follow up with the second part of our two part series on 12 Basic Life Insurance Questions. For Part One See here [...]