Calculate Your Needs
When purchasing life insurance, the question really isn’t how much you need, but how much capital your family will need at the time of your death, which depends on two variables:
1) How much will be needed at death to meet immediate obligations?
This amount takes into account all final expenses: uncovered medical bills, funeral and estate-settling costs, outstanding debts, mortgage balance and college costs to name a few.
2) How much future income is needed to sustain the household?
This is the number you’ll arrive at after calculating the “present value” of cash-flow streams your family will need after your death.
There are many kinds of life insurance, but they generally fall into two categories: term insurance and permanent insurance.
Term insurance, the most affordable type of insurance when initially purchased, is designed to meet temporary needs. It provides protection for a specific period of time (the “term”) and generally pays a benefit only if you die during that term. This type of insurance often makes sense when you have a need for coverage that will disappear at a specific point in time. For instance, you may decide that you only need coverage until your children graduate from college or a particular debt is paid off, such as your mortgage.
Permanent insurance, by contrast, provides lifelong protection. As long as you pay the premiums and no loans, withdrawals, or surrenders are taken, the full amount will be paid. Because it is designed to last a lifetime, permanent life insurance accumulates cash value and is priced for you to keep it over a long period of time. It’s impossible to say which type of life insurance is better because the kind of coverage that’s right for you depends on your unique circumstances and financial goals. Often, a combination of term and permanent insurance is the right solution.
Try our interactive Product Selector. It walks you through the questions you need to consider to determine the kind of life insurance that’s right for you. Remember, the best way to figure out the amount and type of life insurance that makes sense for your particular situation is to meet with a qualified insurance professional.
At first glance, buying insurance can seem so overwhelming that you may be tempted to skip it altogether. This section clearly defines the different ways to gain coverage and provides you with the best possible purchasing options based on your situation and needs.
Most people buy life insurance through agents or other financial advisors, and for good reason. Buying life insurance can seem so overwhelming that you may be tempted to skip it. Don’t! Here are the different ways to get coverage so you can choose the best option based on your situation and needs.
Determining how much and what kind of insurance to buy is one of the most important financial decisions you’ll make, but it can also be complicated. A qualified insurance professional will conduct a comprehensive financial needs analysis, and walk you through the multitude of questions you need to consider to determine how much and what kind of insurance is right for you, given your budget. And what many people don’t realize is that when you sit down with an agent to discuss life insurance, the consultation is free.
Of course, the quality of advice you get is dependent on how good your agent is. Here are five tips to help you choose the right agent.
- 1. Get referrals
- The easiest way to start your search is to get referrals from the people you trust such as friends, family members and other professional advisors you already work with, like lawyers or accountants.
- 2. Find out about their specialties
- Make sure that the agent you select has the expertise to meet your needs. One insurance agent may specialize in life insurance, another in long-term care insurance. Whatever their specialty, good agents will take the time to listen and ask questions about your objectives, help construct a basic game plan, and work with you to find the right insurance solutions for your needs and budget.
- 3. Inquire about their education and training
- If you are not familiar with the letters listed after an agent’s name, ask about them. Professional designations, such as Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), Certified Financial Planner (CFP), Financial Services Specialist (FSS) and Life Underwriter Training Council Fellow (LUTCF) indicate that the agent has completed advanced training, passed rigorous exams and is serious about professional development.
- 4. Meet face-to-face
- Interview at least two agents to establish a basis for comparison in terms of qualifications and character, not just fees. Ask for customer references and check that the agent works with financially sound insurance companies.
- 5. Ask if they hold a professional membership
- An agent who is a member of professional associations, such as the National Association of Insurance and Financial Advisors (NAIFA) or the Million Dollar Round Table (MDRT), means they adhere to a stringent code of ethics and are committed to enhancing their skills and knowledge.