A Simple Process For Selecting The Right Insurance Policy
Selecting the right life insurance policy is confusing, right? So much to think about. So many variables. So many confusing options and words. You didn’t sign up for this! All you want to do is take care of your family!
Never fear. We’re here to help you make sense of the confusing world of life insurance. In this post we’re going to walk you through a simple process for selecting the right insurance policy.
You shouldn’t be intimidated by life insurance. Here’s what you need to know.
STEP #1: Calculate How Much Insurance You Need
The first step is to calculate how much insurance you actually need. You don’t want to blindly guess, hoping you select the right amount. Fortunately, it’s not that complicated.
- Estimate your family’s living expenses.
- Add up your current debts
- Take into account future expenses like college education for your children.
- Add up your current financial resources
- Calculate the amount of insurance you need by subtracting your total expenses from your financial resources.
STEP #2: Select The Right Type Of Insurance
Before you select a policy, you need to determine whether you’re going to purchase term or permanent insurance. How do you know if you need term life insurance or permanent life insurance?
Let’s break it down.
Term life insurance is appropriate…
Term life insurance, to state the somewhat obvious, is valid for a specific time frame (a term). Typically, people choose term life insurance when there are people who are dependent on them for income.
For example, if you have children, you may want term life insurance that will be valid through their college education. This allows you to protect your dependents and then have your policy expire at the appropriate time.
Term life insurance only pays out if you die during the term.
Permanent insurance is appropriate…
Permanent insurance is best for those who need a large amount of life insurance but have a limited budget. It’s also best for those who want insurance for their entire life. It only pays out if you die, but you can be sure that there is always a payout. As long as you keep up your premiums, the insurance won’t expire and you can be assured that those dependent on your will receive funds in the event of your death.
- Term life insurance is appropriate if you only need insurance for a specific time frame.
- Permanent insurance is appropriate if you need insurance for your entire life.
Are we clear here? Great. Now let’s talk about the steps you should follow when selecting your policy. It can be a confusing process that makes your head spin, so here’s what we recommend.
STEP #3: Get Multiple Insurance Quotes
Insurance policies can have a lot of moving parts. Depending on your age, gender, habits, health, and life circumstances, your quote will vary. For example, a quote for a regular smoker will be different from someone who doesn’t smoke. If you engage in crazy, risky hobbies like extreme dirt biking, your quote may be higher.
Honestly, trying to sort through all the options and restrictions can be massively perplexing. Be sure to get multiple quotes so you can know exactly what’s available for you. Take time to review your different options.
STEP #4: Don’t Buy From Shady Agents
Your insurance agent should not be like your car mechanic. If they can’t explain what you’re buying or why you need it, stay away from them. Your agent should be able to walk you through each portion of your life insurance, helping you understand it’s function and why you’re paying for it.
If an agent says, “Just trust me,” then don’t! Don’t be afraid to get a new agent if you’re not comfortable with your current one.
STEP #5: Remember: You Are The Client
Do you remember the hilarious episode of Seinfeld where Jerry purchases a new car? His friend, George Costanza, says that Jerry has to be ready to walk away from a deal. The minute they walk into the dealership together and a salesman approaches, George yells, “That’s it! We’re walking!”
While this may be a bit extreme, you should have a somewhat similar approach with buying life insurance. If at any point you feel pushed or bullied into something, take a hike. This isn’t the kind of insurance agent you want. As noted above, your agent should be able to explain everything to you without you feeling like you’re being sold.
STEP #6: Don’t Buy Too Much
When it comes to buying insurance, don’t feel like you have to buy too much. Yes, you want adequate coverage. But as more and more extras sneak into your policy, you’ll see your premiums rising.
The higher your premiums are, the more likely you are to let your policy lapse, which defeats the point of having life insurance. Purchase the life insurance you need, not more.
To go with the car analogy, it’s kind of like buying a warranty. If you let them, the dealer will throw as many extras in as possible. “Yes, I know we live in Florida, but you really should have snow coverage for this vehicle.”
When in doubt, keep it simple.
STEP #7: Ask, Ask, Ask
People often say that there are no stupid questions. That’s stupid. Of course there are. Such as, “Is ‘Don’t Stop Believing’ the greatest karaoke song every?” Answer: yes.
But when it comes to life insurance, there are no stupid questions (really). This is your money and your policy. If you do die, there will be real consequences for your dependents. Ask any and all questions. Get clarity on your options, why rates differ, and the different payout results.
When it comes to your life, you don’t want to mess around.
STEP #8: Consider Getting Enough Insurance For Everybody
We need to get morbid for a second. Death is really expensive, and not just for adults. If a family member dies, you will probably have numerous expenses. These expenses can add a massive amount of stress when your family is already devastated.
In light of this, consider getting life insurance policies for all your family members. Yes, it will cost more, but it’s worth it if the worst happens.
STEP #9: Don’t Plan Based On Worst Case Scenarios
When purchasing insurance, you should appropriately consider the future. However, when thinking about the future, don’t let panic over worst case scenarios drive your decision.
The reality is, you can’t plan for every worst case scenario. If you’re not an extreme skydiver, don’t purchase that coverage in the event that someday you might go skydiving and could suffer a terrible accident.
Think in a clear-headed manner without letting yourself go down dark paths.
STEP #10: Review Your Policy Regularly
Inevitably, the insurance company will make changes to your policy. When this happens, your company should send out a notice alerting you to this change.
Be sure to review these changes so that you understand how they affect you and your family. The last thing you want is to be broadsided by an unexpected change at the worst time. If you can’t understand the notice you received, talk to your insurance agent about it.
STEP #11: Update Your Policy As Necessary
You may need to make changes to your policy throughout its term. For example, if you incur an unexpected debt or contract a debilitating illness, this will need to be reflected in your policy.
Remember, your family will be required to foot the bill for expenses after you die. You want to ensure that they will have adequate income and won’t be overwhelmed by expenses.
STEP #12: Incorporate Your Insurance Into Your Budget
Just like any other crucial, non-negotiable expense (like a car or mortgage), you should incorporate your life insurance into your budget. It’s not a luxury. In the event of your death, it will be a lifeline for your family. Without it, your family may be forced into dire straits.
See, that wasn’t so difficult. While choosing the right life insurance policy may not be fun, it’s incredibly important. Don’t rush through it. Don’t let yourself be pressured. You want to balance cost with coverage.
By following the steps above, you can select the perfect policy for you and your family!