4 questions to consider before buying life insurance for the first time

By Maryalene LaPonsie on November 9th, 2011

Buying life insurance for the first time can seem like a daunting task. While it may be tempting to purchase the first affordable life insurance plan you come across, it is important to pick the right product for your lifestyle from a company you can trust.

Before buying life insurance for the first time, here are four questions to ask yourself.

  1. Why do I need coverage? Your reason for purchasing life insurance can help you pick the right product. Are you looking for a small amount to cover funeral expenses? Do you want to use the value of your life insurance to pay for future costs such as college or retirement? Is replacing your income so you can support your family the main reason for the purchase? Term life policies are affordable life insurance that generally provides coverage for up to 20 years. Coverage amounts may be as low as a few thousand dollars. On the other hand, whole life or other permanent policies are more appropriate for those seeking an investment component to their life insurance coverage.
  2. Who will be my beneficiary? If you have a spouse, he or she may be the natural choice as beneficiary of your policy. However, children, other relatives or even nonprofit organizations can be named as beneficiaries. Regardless of who you choose, make sure you notify them of the policy and let them know where to find the paperwork in case they ever need to file a claim. Also, review your beneficiary information on a regular basis and update it as needed.
  3. Is the company I'm considering financially sound? When it comes time to make your purchase, don't simply look to the popularity of a life insurance company. Take the time to check the insurer's financial ratings. Moody's, A.M. Best and Fitch are three rating firms that score insurance company stability. While a company doesn't have to have the highest possible score to be a good choice, you want to avoid companies with shaky finances.
  4. Have I shopped around for the best deal? Just as with your auto and homeowners coverage, life insurance rates can vary significantly from company to company. It pays to compare life insurance quotes from several insurers. You can find quotes online. Or, an independent insurance agent should be able to provide multiple quotes. When reviewing life insurance quotes, remember that a company's name isn't as important as its financial stability.

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