No one likes to think about leaving loved ones behind, but it’s important to be prepared for the unexpected. When you purchase life insurance, you are safeguarding your beneficiaries against financial burden in the event of your death. There are many different policies to choose from, though. How do you know you are choosing the right one? The following tips can help you make a good decision.
Determine How Much Coverage You Need
The first step is deciding how large a policy you want. The amount of coverage you secure can depend on several factors:
- Income
- Number of dependents
- Total debt
A qualified financial planner is best equipped to help you sort through these factors and come up with a dollar amount. In general, however, you should expect your policy to cover 5-10 times your annual salary.
Choose the Best Policy Type
Two concepts to consider when deciding on the type of life insurance Elk Grove CA, you need are death benefit and cash value. The death benefit is the amount that is paid to the beneficiary of the policy, whereas the cash value is the total of the premiums that have been paid, minus any processing fees charged. As the name implies, a death benefit is only payable upon the death of the policyholder, assuming the account is in good standing. Cash value may be used through a policy loan or by reducing a portion of the policy while the holder is still alive.
A whole life insurance policy offers both death benefits and cash value but can be very expensive. Some permanent policy types, such as universal life policies, allow flexibility with premiums by letting you pay part of it with the amount you have accumulated or adjusting the payout amount. Term life insurance offers a death benefit only, which may be the best option for those who are younger and in reasonably good health.
Purchasing a life insurance policy protects your dependents in the event of your death. It’s good to be prepared, just in case.