5 Key Considerations When Taking Out Life Insurance for the First Time
Life insurance is a key component of risk management for many adult Americans in a changing climate where violence, disease, and other threats are constantly looming unsuspectedly around the corner.
In a recent survey, it was found that nearly 46% of American adults had neither employer-backed nor individual life insurance. This number was higher among adult women, with 22% lacking insurance compared to their male counterparts (11%).
Persisting economic challenges and the surging cost of living have only added more pressure on middle-class Americans, and the idea of taking out life insurance has now become a second-hand thought for many of them.
According to the Life Insurance Marketing and Research Association International (LIMRA), under half, or 46% of middle-income Americans currently have individual life insurance policies.
Despite the gyrating cost of living that has seen the average price of nearly everything skyrocket over the last year, the cost of life insurance has remained significantly low, with a typical 10-year $250,000 life insurance policy, for a healthy 40-year-old individual averaging between $15,00 to $17,00 per month.
Yet, individual factors including age, medical conditions, income, and gender among other things will ultimately determine the monthly premium cost of life insurance. And for some Americans, taking out cheaper and more affordable life insurance doesn’t necessarily give them the coverage they require for them and their families to live comfortably in case of a sudden emergency.
Taking out life insurance will be one of the most critical choices you will face, as it will ultimately determine the level of risk management for both you and your family. With several factors that weigh in when choosing life insurance, it’s best to regard some of the most important considerations that can influence your life insurance policy and the cost thereof.
At first glance, it’s good to consider what your personal insurance needs might be. This might consist of several things, including your family dynamic, financial position, current debt, and any expenses you might have as a family unit.
Typically, if you are someone who makes up a large portion of the monthly family income, you will need to answer whether your life insurance coverage will help meet your family’s financial needs in case of a sudden emergency.
Before taking out a policy, ensure you undergo a thorough assessment or evaluation, as this will help you determine the type of policy you might require. During the evaluation process, you will be required to deliver or provide as much personal information to ensure you are provided with the best policy options available for you and your family.
Evaluate the different types of policies
Typically, insurers will provide consumers with an option of different life insurance policies, with the most common two types being either term-based or permanent life insurance.
It’s best that you first evaluate each before making a final decision, as this will impact how much your monthly premium will be, and what is included in the policy.
Term-based policy
A term life insurance policy will only cover you for a predetermined period of time. This may range, depending on your personal needs, and can be anything from ten, fifteen, twenty, or even thirty years.
Younger consumers often start with term-based life insurance policies, given the fact that their needs and financial position might be different than older and more mature consumers.
Permanent policy
The second option would be to take out a permanent life insurance policy, which will cover you for your entire life. Although this provides better and more thorough risk management, premiums, or monthly payment, will typically be higher.
Although you may end up paying more for permanent life insurance, there tend to be two components included in the policy that helps cover life-threatening events and life savings or investments. Instead of only covering you in case of sudden death and illness, these policies will also help grow your savings over time.
Understand how personal factors can influence your policy
Life insurance may not be priced the same across the board, and usually, insurers will offer a base premium, and only after an assessment, the final premium cost will be determined. Depending on what your personal condition might be, the premium you pay can either be higher or lower, so you should undergo a full and thorough assessment with several providers.
What can affect your premium rate:
- Physical health or pre-existing health conditions.
- The age from when you take out the policy.
- Your current occupation and financial position.
- Any criminal records or legal findings.
- The type of policy term, either permanent or term-based.
If you’re the sole provider for your family, taking out life insurance may be a stressful task, as your personal history may affect whether you are approved or denied. More so, there are instances where personal factors can help you get the best possible policy rate, but if sudden changes take place, such as a change of job, or problems with your health occur your policy rates may change.
Know what you want to protect with your life insurance
An important question to ask, and consider is to think of what you are planning to cover or protect with your life insurance policy.
Often, adults will take out life insurance if they are the main source of income for the family, or if they are considered to be the sole provider. Other reasons may be to protect children or dependents against any financial scrutiny in case of a sudden medical emergency or loss of life.
Consumers might also take out life insurance purely to help them save and invest their money over time. This doesn’t always secure them financially for when they enter retirement, but it does give them the peace of mind their savings will be protected against any economic headwinds they may encounter.
Then of course, often adults see life insurance coverage as a way to protect their assets, such as a home, property, business, or any other large assets. Though there are insurance policies that specifically exist for these cases, taking out a larger insurance policy may help protect these assets against any sudden life changes as well.
Future needs
Once you start shopping around for life insurance, you will need to consider what your future needs may be, or how your life may be changing in the coming years. Often, younger adults may only consider their current lifestyle, but in a few years, things might look completely different in terms of their health, occupation, or family dynamic.
Additionally, if you are taking out life insurance with your spouse and family in mind, you will need to consider how day-to-day expenses are constantly increasing. With this in mind, you will need to think of your future needs from a financial and lifestyle perspective.
As you go through different phases in your life, you may be required to update your policy. Perhaps you get married, start studying again, change jobs or decide to add a family member to your policy, these may all affect how much your premiums may be, and what will be covered.
Taking out life insurance is about planning for the future in terms of your risk management. Though it’s not easy to understand or predict what your life may look like in five or even ten years, it’s important to seek assistance from a professional agent, and provide them with the necessary information related to your lifestyle and any changes that you may undergo in the coming years.
Final words
Life insurance has become an important aspect of everyday life, especially at a time where the threat of disease, violence, and crime are constantly increasing. Taking out life insurance helps to protect you and your family from any future events or any sudden changes that may take place as you grow older.
Though there are a lot of considerations one will need to contemplate before you agree to any policy, it’s advised to seek professional advice from an insurance agent or provider. Additionally, it’s also wise to review your policy every year, or when you undergo any changes such as a change in occupation or family dynamic.
Inevitably, life insurance will not keep the threat of everyday life away, but it does give added protection and peace of mind for individuals that are a core component of their family.