Life insurance is an important purchase you can make to protect your dependents’ livelihood. Because life insurance can be an intimidating topic, you might feel overwhelmed by your coverage options and delay purchasing a life insurance policy altogether. Unfortunately, avoiding such a significant discussion can be costly and detrimental in the long run, especially if the unexpected happens.

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Keep in mind that a policy that fits for someone else may not work for you, so just like when you purchase auto insurance or homeowners insurance, discussing your unique financial situation with an insurance professional is crucial. If you are in the market for life insurance, here are eight important questions to ask your life insurance agent to help you purchase the right coverage.

What kind of life insurance policy should I get?

First, it is important to understand what basic types of life insurance coverage exist. There are two main forms of life insurance that you can purchase—term insurance and permanent insurance.

A term insurance policy provides coverage for a specified number of years and will provide a death benefit only within the specified terms, granted other term provisions are met. Term policies can be purchased from one to 30 years and are typically purchased with a goal in mind, like financially supporting a child or covering a mortgage payment. The death benefit of a term policy can either remain the same amount throughout the term or decrease over time, depending on the type of policy you purchase.

On the other hand, permanent life insurance is a policy purchased to provide a death benefit upon the death of the insured—no matter how long the insured lives. Permanent insurance is more complex than term insurance, with several variations available, including whole, universal and variable universal. While traditional policies have an agreed-upon premium and death benefit upon purchase, forms of variable and universal policies can fluctuate depending on the market.

How much life insurance do I need?

One of the most common life insurance questions is “how much life insurance will I need?” The answer involves two major factors: how much it will take to pay off your debts, including your mortgage, and how much your dependents will need to maintain the same lifestyle after you are gone. Though all companies factor in these variables, insurance providers frequently use different formulas for determining your specific insurance need.

Understanding your life insurance need is crucial, especially for families with unusual debts, such as high medical bills, that may not be considered in a rudimentary-needs formula. Insurance advisors suggest you assess all your debts and walk through your financial goals to determine the amount that best meets your individual needs. Once you are sure your insurance agent is taking all of your current and future financial needs into consideration, you can better determine what type of policy to purchase.

How much does a life insurance policy cost?

The cost of your life insurance policy will depend on a variety of important factors. Your life insurance agent will need to know your age, gender, lifestyle, the type of life insurance you need and your medical status, which may require a physical examination from a medical doctor.

Life insurance companies use these factors to assess your risk level. Anything that could potentially impact your health—from your job and hobbies to your driving record and smoking habits—can increase your risk level and influence the price of your policy. When you are determined to have a higher risk level, you can expect that your life insurance premium will be more expensive.

While knowing how much coverage you need is important, you should also understand how much coverage you can comfortably afford when shopping for a policy. Though the average cost of life insurance ranges from $40 to $55 per month, your premium may be much different depending on your current risk level and the type of policy you choose. Permanent insurance policies generally cost more than term insurance policies.

Does the policy provide living benefits?

There is a common misconception that life insurance only provides death benefits. You may be surprised to learn that many life insurance policies also provide living benefits such as borrowing against the policy’s cash value.

Living benefits vary by company and may be available to the insured party while they are still alive. Common living benefits available under some life insurance policies include:

  • Early pay: This is a benefit for the insured who has been diagnosed with a terminal illness and helps cover medical costs and care. Your policy and company determine the percentage of the benefit.
  • Long-term care: If the insured becomes unable to provide their own basic care and will require assisted living, the long-term care benefit may allow them to use their life insurance policy to help pay for that care.
  • Short-term care: If the insured is injured or has a temporary impairment, this benefit may help cover the short-term costs of care.

It is important to note that some of these benefits may be included in the life insurance policy, while other benefits can be added for an additional cost. Speak to an insurance professional to see where these options are available if you are interested in them.

What life insurance benefits are guaranteed?

Before purchasing life insurance, it is important to carefully read your policy to understand what benefits are guaranteed in the event of death. Life insurance agents may provide a document referred to as a “life insurance illustration” when you get a quote that details the expected value of your policy, depending on how long the policy is active.

However, the economy can cause a considerable fluctuation in projection values, especially with variable policies. When reviewing your illustration, you should mainly focus on the “guaranteed” figures and make sure you are comfortable with those values.

When can I expect returns?

If you are considering a term life insurance policy, this question will not apply to you. If considering a permanent life policy, you should be prepared to wait several years before your policy will generate positive returns.

Permanent life insurance policies are considered long-term investments and are generally purchased as a safety net for unexpected life occurrences rather than financial growth. For the first several years, payments are applied directly to the policy’s premium, so it may take time for your policy to accumulate a cash value or generate a positive return.

What if my health changes?

Unless you are buying a guaranteed-issue policy or purchasing life insurance through your employer, you will probably have to endure a medical evaluation. Throughout your policy, your health could change for better or worse. In some cases, you may be able to undergo another medical evaluation and underwriting process that could potentially decrease your premium—such as if you no longer smoke or you have quit a dangerous job.

Policyholders, especially those with term life insurance, should also ask their agent what could happen if their health declines or they become disabled. It may be worth purchasing a convertible term policy should your health decline during your policy term and you, later on, have an ongoing need for life insurance coverage.

Some life insurance policies provide benefits for policyholders who become disabled even if you do not purchase a disability rider or a separate disability insurance policy. This benefit may include waiving premiums in the event of a disability. Since every company may define “disabled” differently, it is essential to discuss with your life insurance agent what additional riders should be purchased.

What if I need more coverage in the future?

Your life insurance needs may change as you age. The terms and conditions of your life insurance policy might need to change as well. With a term life insurance policy, the idea is that your need for insurance should go away or be reduced by the end of the policy term. If there is still a need for life insurance near the end of your term, most term policies will allow you to convert to a permanent life insurance policy. However, the conversion premiums can get more expensive as you age.

Policies are generally cheapest when you are young and healthy. Although you may not have a mortgage and children when you initially buy your insurance, it is important to consider these potential life changes and future financial needs when determining what type of policy is right for you. Purchasing the right policy can save you money and a headache in later years.