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Five steps for buying life insurance

 

Having adequate life insurance is one way to take care of your family's needs and fulfill the instruction of 1 Tim. 5:8, a verse which implies having forethought toward the future.

When young, the main purpose of adequate life insurance is to provide a financial safety net for your family during your most crucial income-earning years. As one ages that need gradually changes, but there are still valid reasons to have significant life insurance, such as estate planning. For young readers, here are a few guidelines for choosing life insurance for the first time.

Step 1: Calculate the need. Online calculators and insurance agents can help you analyze net worth and potential long-term income and expenses. Use those numbers to determine life insurance needs.

Step 2: Max out employer-provided life insurance. This is generally the best starting place. You may be eligible upon initial employment for coverage without underwriting. Often you can add more coverage using payroll deductions. Remember that employer-provided coverage is generally term insurance and only available while employed. But those policies can be converted to an individual policy when you change jobs or retire. Check with you employer.

Step 3: Choose a policy type. It's good to have some coverage not tied to your job. While there are other variations available, you most often deal with two basic choices — term and cash value. Term insurance is for specific period of time and is usually cheapest. Cash value has an investment component built in. Seek appropriate council on which type is best for your needs.

Step 4: Plan for your spouse. Both spouses should have life insurance, especially if there are young children or an elderly family member that may require care. Costs of providing someone to fulfill those duties can be high for a surviving spouse.

Step 5: Name your beneficiaries. Most people name their spouse. If you want to name as beneficiary minor children, a trust, or your estate seek appropriate professional guidance. Otherwise you may create unintended tax consequences and other problems.

It may also be cost-effective to provide added protection by including accident and disability riders to your life insurance policy. Once your life insurance is in place, be sure to revisit it every few years to make sure it still meets your needs. This is especially critical if there are changes in your family or employment status.


Don Spencer is Kentucky Baptist Convention Church Financial Benefits Counselor.

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