Money Management Newsletter: Insurance
The do's and don'ts
As with most things in life, life insurance
comes with it's own rules. In order to be able to take full advantage
of life insurance, it is helpful to know all that you can about it including
what you should and shouldn't do. Take a look at the following list of
do's and don'ts before signing on to any policy.
Do shop around.
Rates for insurance may vary by as much as 200% from company to company
for the same coverage.
Do review your coverage
periodically. You may want to increase or reduce your coverage as your
needs change. Lifestyle changes such as marriage, divorce, birth or death
of a family member or residential move may prompt a change in life insurance
Do your life insurance
homework before purchasing any coverage. Know and understand the coverage
amount that you require as well as the type of insurance that you are
looking for before approaching an insurance agent or broker. This can
help avoid the unpleasantness of being talked into insurance coverage
that is not suited to your needs.
Do purchase automatically
renewable and convertible coverage when buying term insurance. The renewable
clause allows you to renew your policy for another term regardless of
what happens to your health. The convertible feature enables you to convert
the term coverage to a permanent policy.
Do look into paying
lower premiums for your life insurance if you have stopped smoking. Non-smokers
can save up to 50 per cent on the cost of their life insurance coverage.
Do avoid buying
life insurance for children in most cases. The purpose of life insurance
is to provide replacement income for the dependents of the insured. Children
do not have dependents.
Do look into purchasing
a longer-term (term-to-100) policy or universal life coverage if you have
investments such as stocks, real estate or a business that you would like
to pass onto your survivors. This type of policy can be used to pay for
any taxes that may become payable at death.
Don't purchase a
policy unless you understand the concept behind it. Remember that the
purpose behind life insurance is to provide income for your dependents
if you die. A considerable amount of money can be lost by those who purchase
life insurance coverage without understanding why it exists or how it
Don't buy an accidental
death policy. The same also applies for double and triple indemnity riders.
Life insurance needs should not increase just because a death is accidental.
Don't be afraid
to ask friends and relatives for a referral to an insurance agent or broker.
Dealing with someone that you trust can be worth more than anything so
do not be afraid to meet with several until you find one that you feel
Don't cancel an
existing policy, when replacing it with a new one, until you have the
new policy in place.
Don't use whole
life insurance policies as investments. The rate of return on the investment
portion of your insurance premium can be very low.
Don't buy life insurance
unless you need it. For example, a single person may not necessarily need
life insurance since they do not have any dependents to provide for.
Don't purchase term
insurance that consists of long terms of coverage unless it is warranted.
Five or ten year terms are normally recommended. Although the premiums
will rise when the insurance is renewed for another term, you will still
be better off than paying for insurance that you no longer need.
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