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How to Buy a Life Insurance Policy?

When you get married or have a child, you might start seriously considering a life insurance policy — and rightly so. Should something happen to you, the right life insurance policy can help ensure your spouse’s or child’s financial security for years to come. Aside from deciding which type of policy is right for you and your family, you need to figure out how much coverage to purchase, how to appoint your beneficiary, what to expect when the company prices your policy, and other factors. Let’s dive in.

Buying Life Insurance Online or In Person

Generally, you can compare life insurance quotes online; if you’re shopping for a term life insurance policy and the company doesn’t require you to get a medical exam before finalizing the deal, you might be able to purchase your policy online, too.

However, if you’re buying a whole life insurance policy — or, you’re buying a term life policy and need to set up a trust for your child or other beneficiary (see below) — you’ll want to work with a financial advisor and life insurance agent in person to handle the monetary and legal ins and outs.

MORE: The Differences between Term and Whole Life Insurance

How Much Life Insurance Do You Need?

Answering the following three questions can help you determine how much life insurance to buy.

How Many Years of Income Do You Want to Replace?

Let’s say you make $50,000 a year, and you want to provide your beneficiary with five years worth of income. You’d purchase at least a $250,000 life insurance policy and your beneficiary would have the peace of mind knowing that they wouldn’t lose that $50,000 a year for at least the next five years.

What Are Your Financial Obligations?

This one’s a little trickier. You want to make sure your beneficiary can handle past, present, and future financial obligations. Some of the most common kinds include:

  • Any debts you leave behind.
  • Medical and hospital bills.
  • Funeral expenses.
  • Amount to pay off large bills like a mortgage and car loans.
  • Basic cost of living expenses such as food, clothing, and monthly utility bills.
  • Money for your child’s specific needs (school, medical, extracurricular activities, etc.)
  • College or university tuition.

What Kinds of Services Will Your Beneficiary Need to Purchase

This one’s the trickiest to pin down. If you are a stay-at-home parent who handles childcare and housekeeping, you need to account for the cost of these services. Whomever you named beneficiary will need to pay for these services once you’re gone.

Try out the Life Happens Life Insurance Calculator to help you calculate your life insurance needs.

>>MORE: Do I Need a Whole Life Insurance Policy and How to Find One?

Naming Your Life Insurance Beneficiary

People often buy life insurance policies once they become parents; however, most life insurance agents don’t recommend naming your child the beneficiary of your life insurance policy, even if the child is the one you want to benefit from the policy. Things can get tricky legally, because life insurance companies typically can’t pay the benefit until the court appoints a guardian for the minor. This can take a lot of time, leaving the child financially helpless until it’s all settled.

Usually, parents name each other as the primary beneficiary (some states require this if the parents are married to each other) and it’s fairly cut-and-dried. 

Most life insurance companies recommend naming a contingent beneficiary as well. This is the person who receives the death benefit in the event your primary beneficiary has died (or can’t be located).

However, if you’re buying a life insurance policy and want it to benefit your child, but the other parent already is no longer around or isn’t an option, you can set up a life insurance trust. The trust holds the money and property, you name the trust as the beneficiary, and you appoint a trustee who will manage the trust per your instructions until the child comes of age. Play it safe and consult an attorney on the best way to do this.

How Companies Price Life Insurance Policies

Your annual life insurance cost will depend on the kind of policy (and for how long, if it’s a term life policy) and how much coverage. Additional factors include:

  • Sex: Men usually pay more than women.
  • Age: Younger people usually pay less than older people.
  • Health: The healthier you are, the more affordable your premiums.
  • Smoking: Smokers have higher premiums than nonsmokers. Some companies might not insure smokers.
  • Lifestyle: Risky hobbies like skydiving can increase your premiums.

>>MORE: Comparing Term Life vs. Whole Life Insurance Cost

Other Factors to Consider

Other factors to consider while you’re shopping for a life insurance policy include:

  • Employer-Based Life Insurance: You or your partner or spouse might already have an employer-based life insurance policy, and that’s great, but most likely it’s not enough coverage. Don’t let an employer-based policy stop you from purchasing additional coverage.
  • Buy Early: Because most life insurance companies base your premiums — and sometimes even your eligibility — on your age and health status, it’s better to apply early. 
  • Financial Rating: Choose a company with a strong financial rating to decrease the chance of the company going under — and your beneficiary not getting a payout.
  • Premium Cost: Find a balance between affordable premium and reputable company.

Final Thoughts

Big life events — like marriage, or having a child — often lead people to think about buying a life insurance policy. Take your time to ensure you get the best coverage for you at premiums you can afford, but remember that buying earlier is always better than later. Talk with your spouse or partner about your financial needs and budget. Take advantage of comparing life insurance quotes online, but remember that certain situations — such as medical or legal concerns, or the type of policy you’re purchasing — might call for buying in person. Once you buy a policy, remember to renew it every couple of years or each time you have a major life or financial change.

>>MORE: Life Insurance for Newly Married Couples

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