Questions to ask before buying life insurance
It can be daunting to search for a life insurance policy. According to insurance industry group LIMRA, nearly half of Americans (46%) say they have put off purchasing the coverage they know they need. Why? When purchasing life insurance, we often face the looming question: Where do you begin?
Here, we’ll answer many of the frequently asked questions people have when beginning the process of buying life insurance. The short answer? Purchasing life insurance is easier than you think.
Life Insurance Questions
There are some answers about your life insurance purchase that only you will know. For example, why are you looking into buying a policy right now? Maybe you want to give your family a way to keep up with mortgage payments on your brand-new house if you suddenly weren’t there. Or maybe you recently had a child and want to protect their financial future.
Let’s begin with the life insurance questions that only you can answer. Being clear about what you want to protect will help you find the right policy for your needs.
Table of contents
Questions to ask yourself about life insurance
Why Am I Buying Life Insurance?
First, let’s cover the basics: Life insurance provides a cash payout if you die while your policy is active. Your beneficiaries (often your family) can spend that payout on whatever they choose.
Many people use life insurance to replace their income in case they die suddenly, especially during critical years while they’re raising a family. Sometimes, people buy life insurance to cover other needs, too. For example, you might buy final expense insurance to make sure your family can cover funeral costs after you die.
The payout from a policy can cover your income, your mortgage, or continue to pay bills, such as your child’s college tuition or your new car’s monthly payments. Maybe, similar to other families, you’ve needlessly put your family at risk of financial hardship if they were no longer able to rely on your income as the main wage earner. Many families don’t have much set aside in savings, and nearly four in 10 Americans (37 percent) would borrow money in some capacity if hit with an unexpected bill. Life insurance can provide an extra cushion.
With these reasons in mind, the biggest question to ask when buying life insurance is: What do you want to protect? Knowing why you’re planning to buy life insurance can help you and your agent find the right policy and coverage amount for you.
What Type of Life Insurance Do I Want?
This is another one of the important life insurance questions to ask yourself. The answer will depend on the type of protection you’re seeking, how long you want your protection to last, and what you want out of your policy. There are two basic types of life insurance coverage: term life insurance and permanent life insurance.
Term life insurance is a life insurance policy that lasts for a set length of time, usually between 10 and 30 years. If you die during your term life period, then your beneficiary receives a tax-free cash payout. If the term expires, or if you stop paying your premiums, then the coverage ends. Since a term life policy is the most affordable and straightforward type of coverage, it’s by far the most popular choice for life insurance for most people, especially young families.
Permanent life insurance, which includes whole and universal life insurance, offers lifelong protection without having to worry about coverage lengths or renewals. As long as you keep up with your premiums, then your beneficiary will receive the death benefit outlined in your policy when you die. For that reason, permanent life insurance is much more expensive per dollar of coverage than term life insurance. A permanent policy is often best for people with lifelong financial needs, like providing for a child with disabilities.
Permanent life insurance also builds cash value throughout our policy. Each time you pay your premium, a portion of those dollars go into building tax-deferred cash value. As your cash value grows over time, you may be able to withdraw funds as needed. Just like your death benefit, you can spend those funds on whatever you choose.
Not sure which policy would be best for you and your family? Get your free life insurance quote today to compare select policies and affordable rates from top life insurance providers.
How Much Life Insurance Do I Need?
One rule of thumb to answer this question is that you need 10 times your annual income — and that still may be true for you. However, a more realistic answer to this question depends on your personal financial situation. For example, if you have zero debt, own a home, and have a comfortable amount of savings, your life insurance needs probably will be different from someone who is paying off hospital bills, renting an apartment, and beginning to pay for their child’s college tuition.
To find the right amount of coverage, think about how much your family needs to maintain their lifestyle if you pass away, and then be sure to add on any other debts that you’re currently paying off. You’ll also want to consider factors like how much is left on your mortgage (if applicable); how much your monthly bills cost; and how much you’re currently putting aside for long-term goals, like paying for college for your kids. The ideal coverage amount will safeguard your family’s financial future and allow them to continue living comfortably if anything happens to you.
To get a more accurate, personalized estimate, try our term life calculator.
Questions to ask your agent about life insurance
Have other questions to ask about life insurance policies? Be sure to talk to a life insurance agent. These industry pros are experts on life insurance and will know all of the ins and outs of the various policies that are available to you. The more information you can share with your agent, the more they’ll be able to help create a personalized plan just for you and your family.
There are so many questions to ask a life insurance agent, but let’s start with some of the basics.
Which Policy Is Best for Me?
Maybe you need help choosing between term or permanent life insurance. Even if you’ve decided on the best type of life insurance for you, you might still be on the fence about your coverage amount or term length. Your insurance agent can explain the benefits of term and permanent life insurance and review the different types of coverage and carrier options available for you.
eFinancial offers access to a wide range of life insurance options from top-rated companies, so our agents can help you compare plans and find the best financial protection for you and your family. For example, eFinancial offers term life insurance for a young family planning on sending their child to college, and a final expense insurance option for people who are between 50 and 85 years old, which can help you cover expenses such as funeral arrangements.
How Can I Maximize My Life Insurance Policy?
Some other questions to ask about life insurance are “what is a rider?” and “is a rider included in my plan?” These are both great questions that can help you customize your coverage around your needs.
A rider is an optional feature you can add to your life insurance policy to cover special situations. Riders adapt your coverage to match your and your family’s financial needs. It’s true that riders may increase your premiums, but that’s because they deliver additional benefits on top of your life insurance plan.
For example, you can add an inflation rider to boost your policy’s cash payout over time to account for inflation. Or, you can add a child rider to provide a death benefit to you if your child passes away before a certain age. Adding these types of riders to your life insurance plan can help provide extra financial support to your loved ones in scenarios beyond the scope of your initial life insurance policy.
Your life insurance agent can help answer more personalized questions, such as suggesting specific riders that you’ll want to include in your policy. It’s important to weigh a rider’s benefits against additional costs to decide whether it’s worth it for you. Learn more about customizing your policy with life insurance riders here.
How Often Do I Need To Pay Premiums?
Premiums are the payments that you make on your life insurance contract. You can often pay them monthly, quarterly, semi-annually, or annually, based on your preference. Talk to your agent about your preferred payment schedule.
Will My Premiums Change Over Time?
With most term life insurance policies, your premium will stay the same for the entire term length. This is often why people choose term life insurance, since it’s easier to manage when budgeting and planning. For term life, you’ll usually choose a term ranging from 10 to 30 years and pay your premiums for that set amount of time. However, if you decide to extend your policy beyond the original term length, your premium may increase significantly.
A permanent life insurance policy provides coverage for your entire lifetime, and your premiums stay the same throughout the policy, but universal life insurance premiums can fluctuate. This is where permanent life insurance gets complicated, so you may want to ask your agent what to expect with your policy.
What if I Outlive My Coverage?
With permanent life insurance, your policy is effective for your entire lifetime, so you’ll never outlive your coverage. With term life insurance, your policy covers you during the years when you need it most, which is why it’s so affordable — but that also means you may outlive your policy.
Many insurers offer the option to renew in some cases, convert to a permanent product, buy a new policy (like final expense) that fits your current needs better, or you can simply let your coverage expire if you don’t need it anymore.
What Are My Rights as a Policyholder?
As a life insurance policyholder, you have certain rights. Some of those rights include the:
- Ability to change a beneficiary.
- Right to cancel or surrender your policy.
- Right to transfer ownership.
- Right to change certain policy provisions.
Your rights as a policyholder depend on your policy. Ask your agent if you have any specific questions about your policy.
Are there any exclusions to my life insurance policy?
Your life insurance policy is a legal document, so it does come along with some fine print detailing specific clauses and exclusions for your policy. These typically vary from plan to plan. Exclusion clauses are designed to protect you, your family, and the insurance company. Here are some examples of the various clauses you may find in a life insurance policy:
Clauses That Help Protect You Include:
- Free look period. This allows you to return your policy for a full refund within a specific period of time (typically 30 days).
- Grace period clause. This keeps the policy active for a certain period (usually 31 days, but this varies by state) if you need extra time to pay your premiums. The policy can be terminated if the grace period ends and no payments are made.
- Beneficiary clause. You have the right to decide who receives your death benefit.
- Survivorship clause. You can require that beneficiaries outlive you for a certain period before getting a payout.
- Spendthrift clause. If your beneficiary is in debt, this clause protects the policy payout from being claimed by creditors before the beneficiary receives the benefit.
Clauses That Help Protect the Life Insurance Company Include:
- Entire contract clause. If policyowners make any false statements on the application, the insurer can terminate the contract and deny coverage.
- Misstatement of age clause. If policyowners lie about their age during the application process, the insurer can increase premiums, adjust the benefit amount, or terminate the policy.
- Suicide clause. This clause states that insurers do not have to pay out if the policyowner dies by suicide, sometimes within a specified period. In this case, the insurer usually returns all premiums paid to the policyowner’s family.
- Reinstatement clause. If a policy is terminated due to the policyowner falling behind on payments, you can reactivate by paying all outstanding premiums owed, plus interest. However, you may have to prove your insurability first.
Ask your agent if you have any additional questions about life insurance policy exclusions and clauses.
What if I Need To Update My Policy?
As the life insurance policyholder, you are in charge of any changes that you’d like to make to your policy. Many people update their policy if they have a significant life change, such as getting married, having a baby, or buying a house. Depending on your insurance company, updating your life insurance policy is often easy. You might be able to make changes online at the customer service portal, or simply contact the company to update your policy.
Don’t let unresolved questions prevent you from buying the coverage that you know you need. According to insurance industry group LIMRA, nearly 4 in 10 insured consumers wish they had purchased their policies at a younger age. Talk to a life insurance agent so you don’t risk being on the wrong end of that statistic.
Still have questions about buying life insurance?
Our team at eFinancial is here to answer questions and help people find the financial protection they need. Call us at 1-800-482-6616 to speak to one of our agents today.