- Life insurance is designed to cover a specific loss. For example, a person who is the sole income earner in a household might wish to insure a percentage of their income in the event they die prematurely. Many insurance agents recommend seven to 10 times the annual income in life insurance. This is generally enough, when invested wisely, to provide an annual income in interest payments roughly equivalent to that of the insured.
- Ideally, a person will be able to decrease their amount of life insurance as they gain assets and savings. The primary function of life insurance is to fill the gap that many younger people have between the income their family would need and the security blanket that their assets can provide. Life insurance prices are typically lowest in the decade between ages 25 and 35, so getting insurance at that age is important. Of course, a prospective insured can obtain insurance at most any age, but if budget is a factor, it's best to lock in a lower price early.
- Life Insurance can be built with a number of features. Some who buy life insurance like the idea of riders that offer the return of a certain percentage of premiums paid if the policy is ever canceled, while others prefer to add additional coverage should death occur as the result of an accident.
- Consider the beneficiaries who are named on the policy. In some states, children under the age of 18 cannot directly receive a death benefit payment. The money in those cases is put into trust until the children reach the age of legal maturity. A parent might not be a suitable primary beneficiary, since it's possible that they'll be gone before the insured. Often, a revocable trust, or an entity set up by an attorney to manage the estate after death, is a suitable option. Sit down with an attorney and insurance agent to ensure which option is right for you.
- While many life insurance companies offer grace periods in which their policies won't lapse for nonpayment of premiums, these grace periods are short and if the policy lapses there's no guarantee it will be re-issued. It's important to pay premiums regularly and for as long a period as possible. With that in mind, many insurance companies offer discounted rates for multi-month payments. One typical arrangement is to offer 12 months of coverage for the equivalent of 10 months of premium payments.