In this article, we will go through some tips on how to get the most of your coverage and what you should consider before you purchase a Term Life policy.
Term Life Insurance is a very common insurance plan and this is different from Whole Life Insurance as it does not have a cash value and surrender value.
A Term Life Insurance plan only provides a payout in the event of death, permanent disability and terminal illness.
Tip 1: Calculating your coverage
The main consideration you will need to know is the extent of your financial obligations. A simple analysis would be to see who are your dependents and how much money they would require for them to be cared for in the event of your passing. The next component of your obligations is any existing debts you may owe.
Sarah is a single mother and she has a daughter that is 9 years old.
Sarah is currently earning $30,000 a year and spends $15,000 a year as expenses to care for her child. She also has a mortgage loan of $100,000 remaining for her flat. She would like her life insurance policy to be able to fund her daughter’s expenses until she graduates from university.
Here is how much coverage she should get:
Everyone’s coverage amount will defer depending on their financial situation and financial obligations. For example, if Sarah’s parents financially depended on her, her coverage amount will probably have to be increased accordingly.
Tip 2: Don’t wait too long to get covered
If you wait too long to review your financial portfolio, your family is at risk if anything happened to you. Buying Term Life Insurance always costs lower the earlier you get it, so purchasing a plan as early as you can will help save you money in the long run.
Tip 3: Don’t skim on the coverage term
To save a few dollars, people often buy a Term Life Insurance that is too short. This increases your risk of being unable to get insurance coverage in the longer term or pay higher premium rates if you fall seriously ill or develop serious health complications after your existing Term Life policy expires.
Tip 4: Always review your financial portfolio at key milestones
Congratulations, you have a new child, a new home or you’re pursuing a new business venture! This is great news. This is an ideal time to start considering serious financial matters. You’ve crunched the numbers, so you know you can pay off your loans. However, have you considered what happens to your family if you are not able to support them financially?
5 years after Sarah first purchased her term life insurance policy, she now starts her own cafe business and takes on a loan of $250,000. This would mean that her previous coverage amount is no longer sufficient. She was only able to pay off $25,000 of her mortgage loan. Her daughter is now 14 years old.
This would be a good time for Sarah to increase her coverage to match her current financial situation.
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