Research policy options and company reviews. Because life insurance policies are a major expense and commitment, it’s critical to do proper due diligence to make sure the company you choose has a solid track record and financial strength, given that your heirs may not receive any death benefit for many decades into the future. Investopedia has evaluated scores of companies that offer all different types of insurance and rated the best in numerous categories.
Life insurance can be a prudent financial tool to hedge your bets and provide protection for your loved ones in case of death should you die while the policy is in force. However, there are situations in which it makes less sense—such as buying too much or insuring those whose income doesn’t need to be replaced. So it’s important to consider the following:
What expenses couldn’t be met if you died? If your spouse has a high income and you don’t have any children, maybe it’s not warranted. It is still essential to consider the impact of your potential death on a spouse and consider how much financial support they would need to grieve without worrying about returning to work before they’re ready. However, if both spouses’ income is necessary to maintain a desired lifestyle or meet financial commitments, then both spouses may need separate life insurance coverage.
If you’re buying a policy on another family member’s life, it’s important to ask—what are you trying to insure? Children and seniors really don’t have any meaningful income to replace, but burial expenses may need to be covered in the event of their death. Beyond burial expenses, a parent may also want to protect their child’s future insurability by purchasing a moderate-sized policy when they are young. Doing so allows that parent to ensure that their child can financially protect their future family. Parents are only allowed to purchase life insurance for their children up to 25% of the in-force policy on their own lives.
Could investing the money that would be paid in premiums for permanent insurance throughout a policy earn a better return over time? As a hedge against uncertainty, consistent saving and investing—for example, self-insuring—might make more sense in some cases if a significant income doesn’t need to be replaced or if policy investment returns on cash value are overly conservative.
