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Tips for Buying Your First Life Insurance Policy
So you're thinking about getting life insurance, but it's your first time exploring a policy and everything it offers. You probably know a few things, like how it has a death benefit that looks after your loved one when you pass away. But that's about it. What you might not know, however, is that there are different types of life insurance options, including coverage that helps you build wealth while you're still alive. You're surprised, right. But in a good way, of course. It gets even better, and we've got some handy life insurance advice if it's your first time buying a policy.
1. What type of life insurance do you want?
Before enjoying the benefits of life insurance, you’ll need to decide on the type of policy you want. There are two primary options: term and permanent. A term policy covers you for a specific amount of time, usually anywhere between 5 and 30 years. Once the term ends, you’ll no longer have life insurance.
A permanent policy differs as it gives you life insurance that doesn't expire. You also get the benefit of wealth accumulation through the cash-value aspect, which allows you to build savings tax-free. Even better, these savings can also be accessed while you're still alive, which adds a whole new dynamic to the concept of life insurance. Term coverage is the cheaper version, but it doesn't have any added features on top of the death benefit.
2. Decide how much coverage you need
It’s been known for people to underestimate how much coverage they need, so you really should think about the amount you want to insure yourself for. Yes, you’ll probably need to pay off major debts like the mortgage, but think about what the people you’re leaving behind need on a day-to-day basis.
The good news is that you get a customized quote based on your unique needs and interests by taking a 5 min questionnaire with Amplify. It may also be worth getting a death benefit equal to 10 times your salary, as this tends to be a basic way of working out the amount needed for a life insurance policy.
Don’t worry; it doesn’t have to break the bank. You can get a large coverage amount and still get cash savings and long term benefits by getting a combination policy, which gives you a higher coverage amount for the 10, 20, or 30 years and then lowers your coverage (when you need less protection) while still allowing you to draw cash savings for your retirement and have some amount of permanent protection.
3. Understand what affects your premiums
The premium is the amount you pay the provider each month, so you want to ensure that you understand how it all works. Essentially, the amount you pay will be dependent on several factors, such as whether you opt for a term or permanent policy.
However, the main aspects to consider are your age, health, and even sex. The younger you are, the cheaper your premium is. That goes for your health, too, as someone in rude health will pay a lot less than a person with previous health conditions. Lastly, women typically don't pay as much for their policies as they're seen as less of a risk compared to men, who don't live as long on average.
4. But don’t just focus on the premium
The premiums are important and will be a major driving factor in your decision. But if we could give you any life insurance advice, it's that you look at the bigger picture and don't just focus on the premiums.
Take permanent life insurance, for example. On paper, its premiums are more expensive than a term policy. Dig a little deeper, though, and you’ll see there’s more value in the long term with perm coverage. That’s because your premiums don’t change the entire time you’re covered.
A new policy taken out at the age of 35 will have the same premiums when you’re 75. However, if you wanted to renew a term policy at 75 (after initially taking it out at 35), you’ll be charged at the renewal age rather than when you took out the initial coverage.
5. Know what drugs life insurance providers check for
Life insurance providers check for a lot of drugs, which makes sense as they need to be thorough. Therefore, it’s worth researching which types of drugs they check for before signing off on your policy.
Some of the basics include things like anabolic steroids, Methamphetamine (otherwise known as crystal meth), and Cocaine. And while those specific drugs are pretty self-explanatory when it comes to why you might be rejected, providers do differ over substances like Marijuana: some flag it up while others are happy for it to appear in your system.
6. Look at the available riders
Life insurance is highly customizable, and it's handy to know about available riders when getting life insurance advice. Riders act as add-ons that allow you to customize your life insurance policy.
They add benefits to your policy, such as long-term care, access to your death benefit if you become terminally ill, or the chance to waive premiums. Knowing which riders are available and how they can help you can increase the benefits you get from your life insurance policy will add more options to the policy and give you a greater amount of customizable features.
7. See if your employer offers life insurance
Many employers offer life insurance to their employees. This is known as “group life insurance” and can come in handy if you’re looking for basic coverage. We say “basic” because group life insurance isn’t customizable, usually has a cap for the death benefit, and will be with the employer’s provider of choice.
Still, it can be helpful, but you might want to think about adding a personal policy alongside your work coverage. A personal policy allows you to customize everything to your liking and will be more tailored to your needs instead of a one-size-fits-all approach to group life insurance.
8. Be honest in your application
We get that you’ll want to keep premiums as low as possible, but telling porkies on your life insurance application will only end in tears. If you omit any important information and the provider later finds out, your policy will essentially be disqualified.
Most insurance companies can get information about you by accessing your medical records. So even if you did change some of the info, there’s a good chance they would find out before the policy begins and refuse to give you life insurance. The truth really will set you free–or, you know, grant you access to life insurance.
9. Think of permanent life insurance as a savings account
Most people think about life insurance as something that covers your loved ones if you’re no longer around. And while that is the crux of basic life insurance, it’s not the only benefit. If you get a permanent life insurance policy, you can build your wealth through cash value. That makes it more like a savings account, with the average returns anywhere between 6-8%.
A perm policy will see you paying into two pots: the death benefit and cash value. Both of these grow over time, and you can access the cash value while you’re still alive and spend it on pretty much anything you want.
On top of that, the savings you accrue are tax-free. That’s because you can withdraw the cash value by taking out a 0% loan against yourself. Then, when you pass, the loan is repaid via the growing death benefit, with the leftover going to your loved ones.
10. Get a quote
You’ve got the details about life insurance, so all that’s left to do is get a quote. So find a policy that’s right for you and matches your preferences.
In conclusion: Life insurance advice
Everyone needs some life insurance advice before setting up their first policy. With our tips, you will be able to make an informed decision about life insurance and make the right decisions for you and your family’s future.