It’s one of those subjects people don’t really like to talk about, but life insurance is one of the most important and valuable things you can purchase for yourself. That’s because, typically, life insurance is used to replace a family’s income to protect their needs and lifestyle should the main source of income be lost. And yet, people often buy life insurance that is not appropriate for them, which can result in relying on solutions that may be short term or cost-prohibitive as the insured gets older.
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Therefore, it is important to select the best insurance policy and company that not only will help ensure a safe future for your finances, but also makes it easy for you to obtain and maintain your insurance plan. With that in mind, here are 5 important life insurance buying tips that will help you make the right choice for you:
Tip 1: Consider why you need insurance.
There are number of questions you will want to ask the insurance company or sales representative before selecting an insurance plan. One specific question you need to think about is how much coverage your family will need to maintain their lifestyle and future expenses. You can estimate this by monitoring your annual expenses and debts.
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Tip 2: Do your homework.
Buying the appropriate policy with the right amount of life insurance requires research. Not every life insurance policy is created equal. Many companies will not insure military servicemembers or, if they do, the premium may be more costly as the risk of an active-duty servicemember is higher. Look for military-friendly insurers online to find ones in line with your needs.
Tip 3: Compare your options.
There are many specific types of life insurance; however, policies generally fall into two main categories: Term and Whole. Term life insurance, which can be less expensive, provides coverage for a specific period of time. At the end of the set “term” the policy ends and there is generally no return of premium. Whole life insurance generally starts at a higher premium and provides coverage with a fixed premium that doesn’t expire. Whole life policies are generally kept throughout a person’s “whole life”; however, they can also provide some flexibility depending on the terms of the contract with a policy loan or partial surrender. The premium for a whole life insurance policy is absorbed into the cash value of the policy and the insurance company collects their expenses to maintain your policy based on your age. The balance of the accumulated premium contributes to the cash in the policy.
Related: Comparing life insurance coverage options
Within term life insurance and whole life insurance, there are many specific options and it is important to read through the terms of your contract. Different policies in the same category may provide the same death benefit, but could be structured with a higher premium, or have a requirement for additional fees such as a termination fee if you stop paying the premium or cancel the policy.
Tip 4: Learn about the insurer.
Not every life insurer is built the same way. Most companies are large, for-profit organizations, but there are a few that specialize in a specific section of the population, such as insuring military servicemembers and their families. Some of those organizations are non-profit mutual aid associations, such as AAFMAA. Mutual aid associations generally provide additional services to their Members — and the Members of the organization vote each year on important topics that may affect them. One way AAFMAA provides aid to our Members is by offering Survivor Assistance Services with every policy. Through this specialized service, one of our Survivor Benefits Representatives will make notifications to DFAS, VA, OPM and other insurance companies on your family’s behalf as needed. Since your essential documents are required in order to apply for these benefits and entitlements, AAFMAA also provides you with your own secure Digital Vault to store them for future reference.
Tip 5: Read and review the policy.
When you purchase a new life insurance policy, there is a free period, typically 10 days, within which the policy owner can terminate the policy without a penalty. Each policy has a contract, also known as terms and conditions, which outlines how the policy is administered. Look to see if the premiums and benefits change each year. Ask what the interest rate is each year. Find out what the guaranteed projections of the life insurance policy are.
Once you’ve selected a life insurance policy, continue to review it periodically to ensure it still covers your needs, if they have changed. This also gives you the opportunity to ensure all of your contact information remains current and the beneficiary and their relationship to you is accurate. Most insurance companies provide the policy owner with an Annual Statement. Keep a copy of it in your files. As an AAFMAA Member, it will also be stored automatically in your Digital Vault. Be sure to let your family know about your insurance coverage and how to access it once the time comes.
AAFMAA Membership Coordinators are experts in our life insurance policies. To speak with one today, call 866-533-0521. If you would like further information about our Survivor Services or to update your Membership information, please reach out to our Member Services team at 703-707-1182.