5 Important Questions to Ask Before Buying Life Insurance

It’s important to know what you are getting into when you begin looking for life insurance. It is easy to get sucked into those advertisements which promise half a million dollars in coverage for as low as seven dollars a month, but that is often not what you end up with.

Whether you begin your search online or by contacting a professional insurance agent, asking these important questions will ensure you get the right coverage for the right price.

Questions to Ask

1. Why Should I Buy a Policy?

The first thing you should consider is why you’re interested in life insurance. Do you want to provide a few years’ financial cushion for your family if you die? Or have you recently taken on debt that requires coverage? Perhaps you simply want to ensure your relatives have enough to pay medical bills and funeral expenses. Whatever your end goal is will determine what type of policy you buy.

After you decide why you are buying coverage, you will be able to make a better decision about what policy to buy. Term life, for example, might be the best option if you’re looking for a financial cushion for your family if you, as the primary earner, die. Universal or whole life coverage, on the other hand, might work better if you have a large estate and want to protect it from excessive taxes.

2. Is There a Grace Period?

One thing that might not work for you is a policy without a grace period for missed payments. You need to make sure you and your insurance company are on the same page with what happens if something unexpected, like an extended hospital stay, occurs and you miss a payment. Can you make it up or will the policy be canceled immediately?

3. What if I Live Past My Term?

Many who buy term life insurance, the cheapest because it offers low, level premiums for a set period of time, want to know what happens if they don’t die. In most cases, they don’t get any financial reward for staying alive. So you need to know what happens as your coverage nears the end of term. Will your premiums go up? Can you upgrade? Should you drop your coverage? Can you convert? Should you?

4. Is my Policy Convertible?

The question of whether your policy is convertible, closely related to the previous one, stands by itself because many policies offer no convertible option, while others can convert to a chronic illness insurance or to a universal or whole life policy. Typically, these conversion options, if available, come with a time limit. If your term life ends when you turn 60, for example, you may be required to convert before age 55 or end up facing exorbitant premiums. If you will have others depending on you financially at the end of the policy term, convertible is a better choice.

5. How Do I Make a Claim?

Before you choose a policy, find out the specifics about what happens if your dependents need to make a claim. How long will the process take? Whom should they contact and under what circumstance will the claim be denied? The claims process should be written into your policy so you and your dependents have it in contract form, but understanding it at the outset is also very important.

What Else?

These questions serve as a great starting point for choosing a policy, but depending on your situation, you may need to find out even more. Whatever you do, make sure you make a thoughtful, well-informed decision. Keep in mind that many agents will try to direct you toward a certain policy because they might make more money off selling it. For that reason, you should also do your own research.

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Posted by List Guy on December 15, 2011. Filed under Miscellaneous, The List. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry