Many people avoid purchasing life insurance despite knowing how important it is. The fact remains that if you contribute financially to your household, there is a good chance your dependents will face a financial impact if you pass away unexpectedly, without having bought a life insurance policy. If you are uncertain about which policy to purchase, this guide will help you make an informed decision.
Types Of Life Insurance
The two major types of life insurance policies are term life insurance and whole or permanent life insurance. Term insurance lasts for a specific number of years. In case of an unfortunate eventuality, while the policy is still active, your dependents will receive a payout. However, if you outlive the term of the policy, you or your dependents will not receive any payout from the insurance company.
Whole life insurance, in comparison, offers coverage for the remainder of your life. In addition, this type of policy also builds cash value, so it acts as an investment tool as well.
How Much Coverage Should You Opt For?
Many financial advisors recommend that you at least opt for coverage that is equivalent to 10 times your current annual income. However, it’s important to also assess how much debt you have and the financial needs of your dependents before choosing the coverage.
Who Should You Choose As Your Beneficiary?
Your beneficiary would, ideally, be the person who is most financially dependent on you. So, for instance, if you are a single parent, it’s best you name your child as your beneficiary. That said, you can choose your parents, other relatives, spouse, and even charities as your beneficiary. Regardless of whom you name as your beneficiary, ensure that you review your choice from time to time and update it when required.
How Much Should Life Insurance Cost?
The cost of the policy will vary widely based on the type of policy you choose, the coverage amount you opt for, and the company that you buy it from. Given how much variability there is, it’s important to put in the time to research different plans. The life insurance policy you choose should be within your budget, while also meeting your coverage needs.
