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Here are seven things that should be considered when taking out a life insurance policy.
1. Do you have dependents at the time that you apply for insurance protection?
If you have children who will need financial care should something happen to you, you will need to consider their financial needs. Things such as school funding and general financial concerns should be considered, and a good insurance policy should cover these things at a minimum.
2. How much do you owe?
When considering life insurance, you should think about just how much debt you will be leaving behind. If you don't have enough life insurance coverage, that debt could be left for your family to pay. Can you afford that?
3. What should a life insurance policy cover?
Typically, a good life insurance policy should leave your dependents with enough money to pay for your funeral expenses, any debt that you should leave behind, as well as whatever your mortgage balance would be. That way, your policy would pay out your existing mortgage, and should leave your family with money to live on, especially if you're the breadwinner of the household.
4. Who will be the beneficiary of this policy?
The beneficiary is the person to whom the money will go once the policy is paid out. It is the person whose name will go on the “pay to the order of” line on the insurance company check. For example, because my children are underage, I made my mother the beneficiary of my insurance policy. Because she lives with my children and I, should something happen to me, my children will be financially taken care of, and they won't have to leave their home.
5. What kind of life insurance protection do you need?
Do you need a temporary insurance for something like mortgage coverage, or in cases where you're lucky enough to have your home already paid for, you might merely want enough coverage to keep your family from having to pay things like your debts, funeral expenses out of their own pockets. In this case, you might consider a more permanent insurance policy.
6. How old are you at the time that you apply for the policy?
The younger you are when you make the decision to get life insurance, the better off you'll be both in terms of the range of policies that are available to you, and the choice of premium options.
If you're older, life insurance will either be more difficult for you to get, or your premiums (monthly payments) will be sky high. So make the decision as early as you can.
7. Mortgage coverage
Consider the length of your mortgage when getting life insurance to cover that particular investment. If your mortgage term is say, 25 years, then common sense would say that you should probably get a term policy to cover that expense for it's duration. Many people over insure, getting a permanent policy to cover a 25 year mortgage. They will be paying those insurance premiums long after it is necessary.
I have a friend who is in her mid 30's, has no children, and no real family to speak of. She has minimum insurance through her job, but was recently concerned as to whether or not she should get more life insurance.
This is a case in which additional life insurance is not necessary. My friend is not married, has no children, and has adequate coverage for what she does have, through her work. Why spend the extra money for additional life insurance? Who was she planning to leave that money to? I told her not to bother.
As I said before, discussions about life insurance are most often extremely boring, but when you think about the possibilities, it's not boring at all.
You never know...
Thanks for reading.
Eva Nichols
Copyright 2006 Eva Nichols All Rights Reserved.
Life insurance is used for the purpose of providing a payment of money after the death of the person who was insured by the policy. The insured person is mentioned in the policy as being the person covered by it. The money payment from the policy in the event of the passing away of the insured is called the death benefit. It is paid out to beneficiaries mentioned in the policy contract.
What is a beneficiary?
This person is nominated in a life assurance policy contract to receive the death benefit. You are able to nominate a single person or more, a trustee, a charity or just your estate.
There are basically two types of beneficiaries. They are a primary and a contingent nomination. The primary person receives a death benefit if she can be contacted after your death. In case the primary person cannot be found, then the contingent person will receive the death benefit. If both are missing the benefit is paid to your estate.
The beneficiaries of your life insurance policy should be clearly identified to prevent possible confusion. You can include a social security number for each relevant person you name. Provide full names of the people you choose.
There are more types of beneficiaries as well. Let us take a look at them.
Final beneficiary -- This person or entity will receive a death benefit if they outlive the other ones. This level is usually reserved for aunts and uncles or a charity of your choice.
Multiple beneficiaries -- When choosing multiple individuals to receive the death benefit, it is important to state clearly how much each individual should get.
Many married people choose to name their spouse as a primary beneficiary. Be mindful when choosing to name an executor, creditor, or a minor to receive a life insurance policy death benefit.
It is important to regularly update your policy information with regards to the beneficiaries. This is especially important after events such as a divorce or child birth.
Be mindful of these tips to help you with life insurance beneficiaries.
* Designate both primary and contingency persons.
* Provide their full name and state their relationship to you.
* Clearly define how the death benefit is to be divided between the beneficiaries.
You should be certain to buy enough life insurance for your particular needs. You should also match the duration of the policy to your individual needs. Buy life insurance when you are healthy since this will ensure a lower premium.
The beneficiary receives a face value of the policy if the policyholder dies within the specified duration of a policy. If the insured person survives this period, then the beneficiaries may receive no benefit. This is the old motive for murder you regularly see on murder mysteries on television. In the case of whole life insurance, this is less of a problem since they stay in force for up to 100 years of age.