Exploring Investment Strategies

Posted on: 17 October 2019

Individual life insurance falls into two main categories — term and whole. With whole life insurance, you build up equity in the policy which you can often cash out while you're still living, but in exchange for that advantage, these policies tend to have higher premiums. With term life insurance, your premiums are locked in for the term of the policy, and although these policies don't build up equity, they tend to offer higher settlements for lower premiums. 

Before getting a term life insurance policy, you should consider the following essentials and contact a financial group in your area.

1. The Value of the Policy 

To ensure you get adequate coverage for your needs, think about all the expenses your family would have to cover if you died early. In particular, you may want to consider your annual income, mortgage payments, education costs for your children, and any other significant expenses. Then, add up all those costs, and ideally, your term life insurance should be about that value. 

Keep in mind that if you're buying individual life insurance for a stay at home parent, you don't need to consider income, but you do need to consider all the services this individual provides for your family. To that end, you may want to add costs related to child care, cooking, driving, and other tasks handled by that person. 

2. Medical Exam Requirement

Some insurance companies require you to get a medical exam to obtain term life insurance, but others don't have this requirement. Depending on your comfort levels, you should decide which option is right for you. In some cases, you may be able to submit medical records in lieu of submitting to an exam. 

4. Length of Your Term 

As indicated by the name, term life insurance is only valid for a certain term. The length of the term can vary, but you need to decide on the term when you buy the policy. To give you an example, imagine that you are 35. You want your life insurance policy to be active while you're paying your mortgage, actively working, and your children are in school. After that, you feel confident that your 401(k) or other investments can sustain your spouse even if you die. Because your house will be paid off in 25 years, you plan to retire in 30 years, and your children are likely to finish college in 20 years, you decide to get a 30-year term. That is an example of the types of elements you may want to consider when selecting your term.