Updated 12 May 2021
When planning for your and your family’s financial future purchasing life insurance should be an essential part of your financial plan. It is one of the most important financial decisions you’ll make. Life insurance will provide peace of mind knowing that your family and loved ones will be cared for if something happens to you. Depending on the type of policy, you buy it can also be a useful financial tool prior to your passing. There are many types of life insurance policies, optional riders, and other options you will have to choose from. The decisions you will make will depend on your current financial situation and family needs. We will be discussing some of the most important things to look for when selecting a policy to fit your needs.
Policy Features & must-haves
Optional Policy Features
- Affordable premiums
- Insurance company with strong financial ratings
- Multiple term options 10, 20, or 30 years
- Guaranteed renewable
- Full payment on terminal illness diagnosis:
- Various death benefit levels:
- Funeral grant: Upon death, your insurer pays out the beneficiary a set amount, usually $10,000 to $15,000 for a funeral.
Optional Policy Features
- Waiver of premium due to disability: This is essential in the event you become disabled for a period over the "waiting period".
- Guaranteed Insurability (allows you to increase your death benefit without additional underwriting): Most insurers allow you to adjust your cover level if you have a significant life change such as getting married, having a child, taking out a mortgage, or getting divorced.
When choosing a life insurance policy, we've listed some tips to consider when you research the best cover for your needs:
A life insurance policy is only as good as the company that backs it. When you buy a life insurance policy, you will likely have it in place for many years to come, so you want to make sure the insurance company you choose to buy your policy from is financially stable and will be around when and if a claim is filed on your behalf.
A.M. Best, Fitch, and Moody's are three independent agencies that rate the financial strength of insurance companies. While these reports can be very insightful regarding the insurance company's financial strength and stability, they are considered an opinion. The ratings of the same insurance company can differ among rating agencies because they each have their own proprietary rating methodology. Each rating service uses an alphabetical rating scale, but an A+ from one rating agency may not have the same meaning as an A+ from another.
The agencies often disagree on ratings, so you should consider a company's rating from two or more agencies before judging whether to buy or keep a policy from that company. The rating scales of each of the major financial rating agencies are listed below. These ratings can be confusing, so it is important to talk with a life insurance professional who can help you decipher what the ratings mean before selecting an insurance company to buy life insurance from.
Working with an experienced life insurance broker can help you understand the many available options and the insurance companies available to choose from. They will talk with you to understand your current financial situation and help you develop a plan that meets your family's needs.
It is essential that you ask them about any aspect of the life insurance policy or product you consider that is not clear to you. It is also critical to regularly review your insurance coverage with your broker to ensure that your coverage keeps up with changes occurring in your life.
There are many calculators and planning tools available that can help you determine the amount of coverage you might need, but there are also a few simple calculations that are commonly used:
As helpful as these formulas and other calculators are, they will still only provide a rough estimate, as is our life insurance calculator. How much coverage you are comfortable with and can afford will also play into your decisions.
A basic life insurance policy will provide your loved ones with a financial benefit at the time of your death. However, there are several additional options you can choose to add to your life insurance policy. The optional cover will vary depending on the insurance company you purchase your policy from - examples are presented in the table above.
When working with a life insurance broker, it is important to let them know the reasons you are looking to buy life insurance to help you find a policy that meets your needs. Did you recently get married or have children? Do you want to ensure a spouse or loved one is taken care of financially in the event of your untimely death or ensure that a child's education can be paid for? There are many reasons why you should consider life insurance, and it should be a critical part of your overall financial plan.
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