3 things you need to know about life insurance if you're buying a policy for the first time

3 things you need to know about life insurance if you’re buying a policy for the first time

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  • Buying life insurance can be confusing if you don’t speak the “language”.
  • Financial planner Spencer Betts says there are a few basics to know before making a decision.
  • Start with the term “beneficiary” – this is the person who receives the payment if you die.

In 2021, Deloitte reported that 102 million Americans, or 40% of the adult population, do not have life insurance at all, or do not have enough coverage to meet their family’s needs in the event. of deceased.

Life insurance is a contract between you and an insurer in which the insurer agrees to pay your beneficiary, such as your spouse, children or siblings, after your death.

Choosing a life insurance plan for the first time can be terrifying, as it involves thinking about the needs of your loved ones after you die. But financial planner Spencer Betts says understanding three key points can help you choose the life insurance plan that’s right for you.

1. The beneficiary listed on your life insurance policy will receive your benefits, not your next of kin

When choosing your life insurance plan, you can choose one or more beneficiaries. A beneficiary is the person who receives payment from your policy after your death; it will not go to your next of kin if it is not on your policy.

Betts says, “Know this is a legal contract. If you get married or divorced, you must ensure that you update this document. The life insurance company has no discretion as to whom to give the money to. written on this form, that’s where the money should go.”

2. Know the difference between term life insurance and whole life insurance

Term life insurance generally lasts 10, 20 or 30 years. If you die during this time, your beneficiaries will receive your payment. This is the most affordable type of life insurance, although premiums may increase over time depending on your policy.

Whole life insurance, on the other hand, is a type of permanent life insurance that covers you for your entire life. Whole life insurance premiums don’t change over time, and the policies have an investable cash value component that you can access while you’re alive.

However, whole life insurance is more expensive. According to Betts, “Term life insurance for someone between the ages of 40 and 60 is very inexpensive because there is a very low probability that you will die; 99% of all term policies end without a beneficiary. doesn’t get paid. Because your lifetime is your lifetime, it’s usually a lot more expensive.”

3. Your employer’s life insurance coverage ends when you quit your job

Many people are offered life insurance as part of their employer’s benefits, but, says Betts, it’s important to understand that these types of life insurance policies end when you quit your job. This is important to know if you are relying on life insurance to cover the cost of your funeral expenses or to help your family in the event of an untimely death.

He says, “If you quit on the first of the month, it might cover you until the end of that month, but it won’t cover you after you leave the company. It’s similar to other types of insurance we buy, like car or home insurance. If you stop making payments, you are no longer covered.”

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