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14 Valuable Tips to Choose the Best Life Insurance Policy

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planning insuranceIf you want to do a perfect financial planning, buying life insurance is a must for you. However, it may be tricky to understand life insurance and select the right product. You may get pretty confused with so many choices from whole to term life and riders to convertibility clauses, while the salesman or agent shoot these words to you like bullets. How to make sense of them?

Most people look at their insurance advisor, sales representative or broker to be helpful in making the right decision. However, in general, there is a bad opinion about representatives and several people have a tendency not to trust the ‘suggestions’ they get. Here are some tips with which you can make sure that you buy the right product for the right cost.


1. Know Your Requirements


No one knows your financial status better than you. This means, in other words, that you should not let someone else to advise you about how much cover you require. You can obtain an approximate estimate of your insurance requirements by adding together your estimated funeral expenses, your debts and income replacement of six months to a year. (Tip: A common rule of thumb is to multiply your annual income by from 5 to 10, making use of lower level if you have not many dependents and have a few debts, and the higher level if you have multiple dependents and large amounts of debts). Reviewing your financial policy can enable you to choose the right policy for your requirements. Sales representatives are trained to sell large policies. Keep in mind that you may not require a hefty policy; you require a policy that’s suitable to you and your family’s financial status.


2. How Much Life Insurance do You Need?


While deciding how much life insurance you need, consider your financial plan as a roadmap that starts from your current financial status. Start by enlisting all your assets, e.g. your savings account, the equity in your home, etc and then subtract what you owe, e.g. credit card debt and the balance of your mortgage. This will help you identify where you stand.

Once you figure this out, think upon your future commitments, like completing your kids’ education, having a comfortable retirement, accomplishing your targets and making your dreams come true. There are many online savings calculators that will help you find how much you will require to save for each of these, even how much you will need for a world trip or a vacation to a small place nearby.

Your next step should be to collect all your bills for last some months to get an idea about where your money goes. These should include even small bills, everything you have spent money on. Be honest about even small expenses and be reasonable while making estimates. This will be an eye-opener as to how much you spend on things you don’t actually need, like having espressos every now and then or eating out.

Next make a budget that should include sufficient savings to fulfill all your obligations and targets and stick to this.

Then comes the insurance. You need first enough to cover your obligations at least in case of something happened to you in the future. This should be the base line, from where you should look into the future and prepare for your needs. E.g. if your kids will be studying in a college after ten years, you have to cover the cost then, which will be much more than it is now.

how much life insurance you need


3. Know the Differences between Term Insurance and Permanent Insurance


Knowing the differences between term insurance and permanent insurance (like whole life) can be a lot of use to you to make an educated decision about your insurance requirements. Today, most of your debts and financial requirements should be covered by a term insurance policy. In turn, you may not require to buy a whole life policy. Try not to be confused with the “what if” situation you might have to listen to from an insurance sales representative. Insurance companies have traditionally been making more profit from selling whole life policies than term policies. So, be ready to hear a sales rep convincing you about how a whole life policy is the best possible option for you (even if it may not be the best choice for your requirements). Keep in mind that you should buy only what you need and then make adjustments later as changes need to be made. Typically term insurance is renewable and should include a convertibility clause which enables you to make alterations in the future. However, there are certain scenarios where actually a whole life policy may be more beneficial than term; so, consider this too, but don’t buy something solely because your sales rep advised you to buy it.


4. Talk to an Individual Broker


An independent broker can sell products of many insurance companies rather than working with just one company. Therefore they don’t tend to sell you a product in which they earn the best brokerage. Thus they can show you multiple choices and let you choose the best suitable one for your needs.

talk to independent broker


5. Avoid Accepting the Very First Recommendations


If a broker recommends you a product in your very first meeting, understand that they haven’t actually analyzed your particular situation and haven’t found the best option for you. You should just avoid accepting his suggestion in such a scenario and keep doing your own research.


6. Learn about the Payment Method for Advisors


Learn if they are paid through commissions, commissions plus fee or only fee. If they are paid any commission, be sure to study all alternative products. When there is a commission involved, the advisor may tend to sell you the product in which they get the highest commission. However, also remember that not all commission-paid advisors are bad; you can know about their intentions and other products by asking more questions. There are advisors who work fully on commissions, still give their clients all the available options.


7. Understand that Insurance is for Protection and is Not an Investment


Term insurance offers only protection with no saving component, whereas whole life and universal life policies include a savings component and are highly expensive. In almost all situations, you are better off buying term insurance and using the cost thus saved to invest elsewhere.

life insurance is not investment


8. Ask Difficult Questions


Don’t hesitate to ask questions to the advisor. Before purchasing, you should know the inside out of the product. You should know if the policy is non-cancelable and renewable. Does it involve an accidental rider? Are there any exclusions and what? Even though you might feel afraid of what the advisor would say, don’t keep any confusion back and get all things cleared.

ask questions


9. Beware of “Know-it-all” Advisor


If you meet an advisor who have ready answers to all your questions without having to refer to anything or is pretending to know it all, there are high chances that he doesn’t. Insurance products are quite complex and even the best and highly experienced advisors don’t know every product through and through, and may have to refer to books and papers.


10. Don’t Substitute Old Whole Life Policies


If you already have a whole life policy for many years, don’t substitute it. If you do, you may lose all the premiums you have already paid. Also you may need to pay new administration fees (if applied) and reset a few clauses (for example, suicide clause). If your status has changed and you require more insurance, just purchase more, but don’t replace. (This warning is not applicable to term life policies).


11. Avoid Expensive Riders


Your advisor may suggest you to add all kinds of riders. Avoid them unless you have thoroughly understood them and think that you require them. During training, selling riders is given a lot of emphasis; however, clients don’t benefit from them.


12. Do Your Research


Before you choose an insurance product and buy it, do your research thoroughly. Make sure that it’s suitable to your requirements and budget. Also make sure you completely understand the contract. It’s obligatory for the advisor to explain it to you. Don’t sign the contract unless you fully understand it.

don't sign contract till you don't understand it


13. Take Benefit of a 30-day Free Look


You get the choice of looking at the policy and understand it for 30 days. If during this time, you are not happy with the policy, you have the liberty to cancel it and get your premium back. Don’t miss to take benefit of this feature.


14. Be Sure to Keep it Simple


Be sure to keep things simple by avoiding making your insurance planning too complicated. Because it is designed to protect your family, it has to be based on your requirements. Don’t fall for all the attractive features (but mostly useless) the insurance provider may try to sell you.

keep it simple

Tichio Financial Group is a full service agency providing service to family and businesses of New Jersey for more than 45 years. They provide all types of insurance including life, home, car, boat, motorcycle, business, flood, landlord and more. Visit their site to know more.

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