How to choose your life insurance – A beginner’s guide


Planning for Life insurance may not sound exciting, but it is an important investment that works for the safety of your family after your demise. It is a flexible and strong financial planning which not only provides financial safety but also helps you to build assets and leave a legacy for your loved ones.

What is Life Insurance

Life insurance is an arrangement between the policyholder and the insurance company to provide coverage for loss of life. To avail this financial security you need to pay a certain amount of premium for maintaining the policy. It is a safety net that provides financial protection to your dependents, during any incidence of untimely death. The premium rates and plans of life insurance differs depending on your age, medical history, income, final sum, and other factors.

Who needs Life Insurance?

You need a life insurance if you…

  • have a family who is dependent on you for financial needs then you need life insurance. It will help your family with continued income and pay the bills.
  • are married, even if you have no kids, life insurance can help your spouse to pay off the loans without losing the asset.
  • have children it helps your spouse to pay off educational expenses.
  • have a special child this policy provides financial support to your child after your death.
  • have a house with a mortgage, the policy will cover the expenses of, helping your family to own the house.
  • own a business, Life insurance can help to pay off your business debts allowing your heirs to buy your share.
  • want to have financial security after retirement, then life insurance can be an added source of income.

Even if you don’t fall under any of these categories you still need life insurance because life changes. Later in life when you feel the need for life insurance, you may become ineligible because of your medical condition. The premium rates increase with your age and may become unaffordable later. Hence investing in life insurance at the right time is a smart move.

Types of Life Insurance

There are many different types of insurance policies. The most common types are:

Term Life Insurance

It is the most basic type of insurance policy that runs for a fixed period of time 10, 20 or 30 years. This policy benefits only if there is a loss of life during that period. It does not provide any cash value at the end of the term. Generally, these policies can be renewed at the end of each term or can be converted to permanent life insurance.

Whole Life Insurance

The whole life insurance policy along with the death benefit also has a cash value. By paying a premium monthly or annually you are funding that final sum. It is much more expensive when compared to term life insurance.

Universal Life Insurance

Universal life insurance is similar to Whole life insurance with some added flexibility. In this policy, you can alter the premium amount and death benefits within some limit and there is also an option to use your cash value to pay the premium.

Comparison of the three types of life insurance

Features Term Life Insurance Whole Life Insurance Universal life Insurance
Duration 1 to 30 years Life Life
Assured death benefit yes yes yes
Assured cash value No Yes Yes
Most affordable Yes No No
Provide flexibility to withdraw the cash value No No Yes

There are variable universal insurances and many other variable policies that give you the ability to invest your cash value in stock, bond or money market. These are high-risk investments as the market value keeps changing.

Choosing the Right Life Insurance

If you need affordable life insurance with assured death benefits then term insurance can be the right choice. Term insurance can be considered when you have other investment plans for building your cash value and retirement plans. But if you are a kind of person without any investment plans or savings for cash building then you must consider whole life or universal life insurance. These policies allow you to provide financial security to your dependents. Discussing your preferences with a certified financial advisor can help you determine the right policy that meets your needs. He can make you understand the available options better, so that you can make the right choice for you and your loved ones.

How much Life Insurance Costs

The cost of life insurance depends on the coverage type and personal factors like your age, health status, and gender. The most important factor that determines the rates of your policy is your age. The cost increases as you grow older, after the age of 35 years the cost increases significantly with every passing year. Buying life insurance when you are still young and healthy can help you save a lot of money. When it comes to cost you can also consider that Life insurance comes with Tax benefits. You can lower your tax by investing in an insurance policy.

Tips to calculate your Life Insurance coverage

There are many online tools available to help you calculate your needed insurance coverage. To simplify this, consider the following steps: Step 1 – Add up your current loans, monthly expenses, and income. Multiply this with the number of years your family might need the coverage. Do not forget to include future expenses like children’s education or other financial needs. Step 2- Subtract your current assets and other investments that are building cash value. The final amount you get is the financial coverage your family would need in your absence. That should be the death benefit and the amount of time your family needs support can be the term. Everyone can not fit in the same policy coverage, your Insurance company can help you to analyze and choose the best one for you.

Factors to consider before buying Life Insurance

  • Do your research. When it comes to choosing the right policy there are plenty of options available. Research well to know which can fit your needs with maximum benefits.
  • Choose the premium that you can afford comfortably. Before making a decision, check if you can afford the premium for the entire term.
  • Check for the lock-in period. During this period you can make changes in your policy or if you feel the policy is not right, you can also return it. Ask the insurance company representative about the lock-in period.
  • Remember, the main aim of Life insurance is to provide financial protection to your family, don’t consider them as just some investment plans.
  • Check for policy riders which help you to customize your policy that meets your needs and budget.
  • It is essential to check the claim settlement history of the insurance company you are choosing. Be aware of the rejected claims and the reasons for the same.

Considering the above factors can help you to choose a reliable life insurance company. Do your homework and if needed take help from your financial advisor to make the right decision.

Why Having Life Insurance Is Important?

In this fast-paced life, we face a lot of stress and tension. Many people encounter untimely loss of life leaving behind the family shattered. During any such condition having life insurance can give safety to the dependent family.

  • Having invested in life insurance you will have peace of mind that your loved ones will be at no risk during any unfortunate event.
  • You can live your life to the fullest without having to worry about the financial burden. There is financial security that will take care of your unpaid loans or mortgage when you are not around.
  • Some insurance plans are good investment plans as well, that can help you to meet your long term financial needs.

Final words

Life insurance is designed to provide financial security and protection to your family. Meeting the premium monthly/annually may sound difficult but it is worth the investment that protects your family from undergoing hardship after your demise. Signing up for Life Insurance is the best way to protect your family and that makes it all worthwhile.

Ready to start thinking to the future? Get a free quote on your life insurance!