When looking at life insurance sometimes it can be hard to choose which type of life insurance you need. Each person has different needs so there is no clear cut way to tell what type of life insurance is the correct choice for you. After reading this, it should help provide some clarity on the subject.
One factor to look at when deciding to get life insurance is the actual type of coverage. Do you want term life or whole life insurance? Most of the time term life insurance will fulfill your needs. Term life insurance gives you coverage for a set amount of time for a set face value. Whole life on the other hand locks your rate in and face amount for the remainder of your life. Whole life is a great thing to have if you purchased when you were young and healthy. The older you are and the more health conditions you have will raise your premium amount. Since most people don’t have a lot of excess money to put aside for life insurance coverage most people decide to get term coverage.
When deciding on how much life coverage you should get we look at a few factors. The rule of thumb is to get 10 times your annual earned income. So, if you make 30k a year you should get 300k in coverage. Now, this can be too much or too little depending o your situation. Let’s assume you have a mortgage for 300k and your spouse stays at home with your two kids ages 4 and 5. In this situation getting 300k in coverage you would be underinsured. In this situation you would want to consider at least 500k. This way your spouse would be able to pay off the house and at least have some money to raise your children. In actuality 500k isn’t enough but that would be a starting point. If it were me in this situation I would have 1 million in coverage to insure my kids could go to college and my spouse could pay off the mortgage and continue with the same lifestyle.
Also when choosing life insurance you should look at the company’s rating with AM Best and how long they’ve been in business. If a company isn’t A rated I would strongly research them before doing business with them. Next, we need to look at the timeframe for your coverage if you have chosen to get term. For this I will use the previous example from above. So, if I have children that are ages 4 and 5 I would at minimum want a 20 year term. Then if I have 30 years left on my mortgage I would decide to get a 30 year term for 1 million in coverage.
Hopefully this has helped you determine how to choose life insurance for yourself. Remember to only get what you can afford even if you are underinsured. You can always get more coverage once your financial situation improves.
