Term Life Insurance - Questions to Ask Yourself Before you Buy
Although talking about life insurance isn't something most people like doing, it is a very real part of proper financial planning. Before buying life insurance, take a little time to think about what type of coverage will best suit the needs of your family. Here are a few points to get you started:
What is the main objective? For example, if you have young children at home with only one partner currently working, you might need life insurance to help replace a lost income for a few years or help with the mortgage. On the other hand, if you are a retiree who owns a home then you might need to replace a pension income. Knowing your needs at this time in your life is essential to proper financial planning.
Know the company. It goes without saying that purchasing life insurance is a long term investment, so it is important to have a company that will be there for you when you need them. Likewise, understand what you are buying and don't hesitate to ask questions until you fully understand and feel comfortable with the decision. The policy you select might last 20 or even 30 years so take your time and ask about the latest financial safety ratings before you buy.
Know about the policy. Most life insurance policies cover death by any cause at any time in any place. Death by suicide during the first 2 years is excluded in most states. However, the policy can be contestable or even cancelled within the first 2 policy years by the company (1 year in some states) if it was discovered that the applicant made deliberate misrepresentations on the application, so remember to answer every question truthfully at the time you apply.
Know who will benefit. Generally, policies paid with after-tax dollars by you are paid tax-free to your family beneficiary. Policies purchased by a business can be taxable to the receiving party. Speak to your attorney and tax adviser about the legal and financial implications of selecting your beneficiaries on the insurance policy. Depending upon your situation, tax rate, assets and other considerations, there are significant implications for how you assign the beneficiary.
The above-listed tips are for informational use only. Refer to your insurance policy contract for specific information regarding your coverages and for actual terms, conditions and exclusions. The above statements are general in nature and may or may not reflect the actual terms of your insurance policy.