Life insurance can offer you or a family member a great benefit in a time of need and it can be an important part of financial planning. Once a policy is purchased and approved through an insurance company, premium payments are made in exchange for a lump-sum payment paid to a beneficiary upon the death of the insured. This money can often help cover bills, funeral expenses, etc. after the death of a family member. There are two basic types of life insurance:
- Term Insurance: Provides coverage for a specific number of years and pays a death benefit.
- Permanent Insurance: Commonly referred to as Whole Life insurance. This type of policy provides coverage and builds a cash value over your lifetime and pays a death benefit.
Before purchasing insurance, talk with an agent so he or she can give you information about policies and help you evaluate your life insurance needs. The amount of coverage you need will depend on how much of the family income you provide and how your family will repay debts and expenses after your death. Be sure to review how much the policy costs, the duration, and that you can still afford the policy if it increases in the future.
Tips on Buying Life Insurance
- Check to see if the insurance agent and company you are working with is properly licensed through the state of Michigan.
- Choose an insurance agent and company you feel confident will meet your personal insurance needs.
- Determine how much life insurance you need, the duration, and how much premium you can afford to pay.
- Pick the type of policy that is best for you by educating yourself on life insurance and asking your agent questions.
- Review the insurance application for accuracy before you sign it.
- Make an informed decision and only purchase life insurance if you intend to commit to the duration of the policy. Early termination can be very costly.
- Make the check payable to the insurance company, not the agent.
- Ask your insurance agent about returning a policy and the free look period as required by Michigan law.
- Review your policy every few years and decide if it should be adjusted for inflation, family size increase, income increase/decrease, etc.
As a consumer, you will need to make informed decisions when changing or replacing your current life insurance policy. Be aware that unlike home and auto insurance, life insurance can involve waiting periods, surrender fees, tax implications on cash value policies, and other complexities. It is also important that you do not cancel a policy and purchase another without doing your research.
To find more resources on life insurance or DIFS visit www.michigan.gov/difs.