9 Things To Consider When Buying Life Insurance

1. Get familiar with the jargon

• Policy: It’s the product you’re buying that details your coverage, including death benefit, premium amount, and term, and also explains requirements that must be met for death benefit payouts.
• Premium: The amount you pay monthly or annually to keep your policy active.
• Death Benefit: This is the amount of money paid to your beneficiaries in the event of your passing.
• Beneficiary: Whether it’s your spouse, children, relatives, business, trust, or charity of choice, a beneficiary is the entity that receives the death benefit payout.
• Term: The length of time your policy covers is your term; not to be confused with the product term life insurance.
• Riders: Also called endorsements, riders are additions or amendments that customize your life insurance policy to your specific needs, and typically have added costs. Examples of popular riders are accelerated death benefit, long-term care, exclusionary, and waiver of premiums.

2. Think about who and what you want to protect

Do you have children or a significant other that you’d like to provide a financial windfall if you were to pass away? Can your family pay your monthly expenses or debts without your income? Will your business continue to operate well? These are a few questions to think on when you’re wondering what to protect with life insurance.

By reviewing your current and future expenses, you can get a general idea of what you may want to protect. Death benefits should cover your entire financial responsibility, leaving a cushion for costs like childcare, college tuition, mortgage payments, or repaying small business loans and credit cards. Additionally, if you think about your goals and how your monthly costs might increase or decrease over time, you can better plan for the right coverage amount to give your loved ones financial peace of mind.

3. Calculate your coverage amount

One of the most critical aspects to consider is ensuring you have enough coverage, and don’t become one of the many Americans whose life insurance policy leaves them underinsured. Because your coverage amount is the total cash paid out from the death benefit, you want to make sure your family is covered for any expenses. You can use a calculator to find the right coverage amount, or for a rougher estimate, one of these formulas:

• To get a ballpark coverage amount, multiply your annual income by 5 or 10. For example, if you make $50,000, anywhere from $250,000 to $500,000 may be a good coverage amount.
• Another option is to multiply your annual income by the number of years you have until retirement, then add on larger costs like mortgage payments, college tuition, weddings, or childcare. The number you end up with is the amount of coverage you’ll need.

4. Contemplate term length

How long do you need life insurance? It seems like an open-ended question, but it depends on your intention for life insurance. If you want to protect your children while they grow up, term life insurance, which comes in 10, 20, 25, and 30-year terms, might be a good fit. You can then estimate the timespan your kids may need financial help (for example, until your youngest child graduates college), and that would provide an estimated term length. If you want to financially help your significant other until they retire, term life might be a match, too.

If, on the other hand, you want the security of lifetime coverage, you might look instead to whole life insurance, since the policies don’t lapse. Whole life insurance can also be a good fit if you have other assets, want to increase savings, or leave a trust or inheritance.

5. Analyze your current policies

Sometimes employers provide life insurance, but often it’s only one or two times your annual salary, which usually isn’t enough to truly support your family. You may have signed up for the policy when you were first hired, and now your family or financial situation has changed. Or you may have purchased life insurance in your early 20s, and today looks a lot different. If you see that your current policy doesn’t meet your financial needs, you can supplement with another policy to put your loved ones at ease.

6) Understand which is a better fit—term or whole

Term

• Coverage for a period of time (10, 20, 25, or 30 years) with a flat-rate premium
• Beneficiaries receive a cash payout if you pass away during the term
• Provides coverage to replace income, pay for monthly expenses, and pay off debts
• Usually has lower monthly premiums than whole
• Doesn’t build cash value for future use or payout
• No payout if you live beyond your term

Whole

• Death benefit lasts your entire life, and policy accumulates a cash value
• Guaranteed rate of return: each month, a portion of your premium goes into the cash value like a savings account and grows over time
• Some policies are flexible in changing the premium amount, policy terms, or investment option
• Cash value may be accessed early to pay for premiums or health events
• Premiums are typically higher than term
• Cash value component is better for covering trusts, endowments, or estate plans

7. Identify an affordable cost

An affordable policy means you can continue making payments to keep your policy active and your family financially secure. Although it depends on your coverage amount, try the DIME method (Debt, Income, Mortality, Education) to see if the cost fits your budget. Separate expenses into these categories to see costs, then compare policy features alongside monthly premiums to see what you can afford. Or, try our coverage calculator.

8. Choose your beneficiaries wisely

Who will receive the financial windfall of the death benefit after you pass? Significant others, children, relatives, businesses, estates, and charities, are all good options; but, it’s always a good idea to have primary and contingent beneficiaries. That way, if your primary passes away, your contingent still receives financial help during their time of need.

9. Find ways to simplify the process

With riders, multiple beneficiaries, policy flexibilities, and investment options, life insurance applications can quickly get overwhelming. That’s why Ethos is on a mission to make life insurance easier and more attainable with quick application processes, simplified underwriting, and a top-notch customer service team to clarify or answer any questions.

Ready? Here’s What’s Next:

Get an estimate on the type of coverage you need with a free quote with Ethos. To complete your application and underwriting, you’ll need your driver’s license number and social security number. Once the application is finished, you’ll have life insurance coverage through Ethos that provides your loved ones with the financial protection and security they need.