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The Money Management Newsletter: Insurance Products
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.

The Do's

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 coverage.

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.

The Don'ts

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 works.

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 comfortable with.

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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