Never buy life insurance blindly


Buying life insurance is not an everyday task. There's a number of factors to be considered before you make the decision. Here are few pointers to guide you:

Term life insurance or whole life insurance

The first question to be answered when buying a life insurance policy is whether to go for the low cost term insurance policy or a universal life insurance. Term life is a good choice if you need cover for only a few years such as your children growing up or paying off your mortgage. Whole life or other type of permanent insurance is useful if you need coverage for the rest of your life. If you are contemplating a major purchase, like whole life insurance, get quotes for a 30-year term or one that covers until the age of 65. This way you can find out what it costs truly to insure your life and what you'd be paying for the fees or cash value portion of the whole life policy.

Choose life insurance policy with living benefits

Living benefits are policy riders or extras that allow you to access the death benefit money even when you are alive but only under certain conditions. These riders may include:

  • Accelerated death benefits rider that lets you access to your payout if you are diagnosed as terminally ill. It might include clause that requires a life expectancy of less than one year.
  • A chronic illness rider that gives you the benefit even in absence of the diagnosis of terminal illness. Eligibility, however, will depend on your inability to carry out "activities of daily living" such as eating, bathing and dressing.

Create a life insurance trust for children

The primary reason for buying insurance is to provide for children when you're not around. You should not name your child as a beneficiary. In that case the company can tie up the money and disburse only when the child reaches the age of 18. If a trust is created, the children receive the money, no matter their age. You could also restrict the use cases of the money to prevent wasteful expenditure by children. The trust could also disburse specific amounts at regular age intervals like 25, 35 etc.

Include payment with the life insurance application to make it binding on the insurance company.

If you include a check for the first payment along with your application, the policy would become binding from that day. This would provide your family financial safety net on the off-chance that you die before processing of the application

Don't allow former spouse to use group life insurance for divorce settlement

If you have a divorce agreement that provides you with alimony or child benefits, make sure you secure it with a life insurance policy of your ex-spouse. This is because the alimony would be stopped if your former spouse dies without an insurance cover. It's advisable to go for term life insurance instead of group life insurance which might be rendered invalid at the time of changing jobs.


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