If you’ve ever asked yourself, “Do I need life insurance?” The answer is a resounding yes. It’s one of those subjects people don’t really like to talk about, but life insurance is one of the most important and valuable financial products you can purchase for yourself. That’s because, typically, life insurance is used to replace a family’s income to protect their needs and lifestyle should a primary source of income be lost.
And yet, people often buy life insurance that is not appropriate for them, which can result in relying on solutions that may be short-term or cost-prohibitive as the insured person gets older. Therefore, it is important to select the best insurance policy and company that not only will help ensure a safe future for your finances, but also makes it easy for you to obtain and maintain your insurance plan.
How Much Life Insurance Do I Need?
Here's 5 important life insurance buying tips that will help you make the right choice for you.
Tip 1: Consider Why You Need Insurance
There are a number of questions you will want to ask any given insurance company or sales representative before selecting a life insurance plan. One question, in particular, is how much coverage your family will need to maintain their lifestyle and future expenses. You can estimate this by monitoring your annual expenses and debts.
However, it’s also important to ask yourself, “Why do I need life insurance?” Doing so can help to consider both your short-term and long-term needs. For example, in the short term, you may have an existing mortgage and car payments. In the long term, you may need to pay tuition when your children go to college.
At this stage, you may also want to consider the ideal policy duration. Some experts recommend having life insurance for at least as long as you’re paying off your mortgage and other debts.
Tip 2: Do Your Homework
Buying the appropriate policy with the right amount of life insurance requires research. Not every life insurance policy is created equal. Many companies will not insure military servicemembers. Or, if they do, the premium for military life insurance may be more costly because they believe the mortality risk of an active-duty servicemember is higher. Look for military-friendly insurers such as AAFMAA to find one that can meet your needs.
Tip 3: Compare Your Options
There are many specific types of life insurance; however, policies generally fall into three main categories: Term, whole, and universal.
Term Life Insurance
A term life insurance policy, which can be less expensive than a whole life policy, provides coverage for a specific period of time. At the end of the set “term,” the policy ends and there is generally no return of premium. These policies usually come in 10- to 30-year terms, though you may occasionally find a 40-year term life insurance policy.
Term life insurance is best if you have more short-term financial needs. Because the monthly premiums tend to be lower, you can afford to purchase a lot more insurance coverage. However, term life insurance will not include additional financial options. Ideally, you’ll own the coverage for the entire term, you won’t die, and as a result, you won’t get any monetary benefits from owning the policy. Similar to your homeowner’s or car insurance, if you don’t have an accident, a house fire, or other claims on your insured property, you don’t receive any benefits from the policy beyond the peace of mind of knowing that you’re covered.
Whole Life Insurance
Whole life insurance generally has higher premiums than term life and provides coverage with a fixed premium that does not increase. Whole life policies are designed to keep the insurance coverage for the life of the person who is insured; however, they can also provide some flexibility depending on the terms of the contract with a shortened premium plan, a policy loan, or partial surrender.
The premium for a whole life insurance policy is absorbed into the cash value of the policy and the insurance company collects its expenses to maintain your policy based on your age. The balance of the accumulated premium contributes to the cash in the policy.
A whole life policy is ideal if you want to guarantee your loved ones will receive monetary benefits after your passing. Unlike term life insurance, whole life insurance includes a cash value, which supports the death benefit and can be accessed while still alive.
As you can see, navigating the differences between life insurance policies can get quite complex. It’s a good idea to seek out the guidance of a qualified financial professional, like an AAFMAA Membership Coordinator to help you navigate the decision.
Tip 4: Learn About the Insurer
Not every life insurer is built the same way — Most are large, for-profit companies. Fortunately, the military community has better options designed exclusively for military families — options such as AAFMAA.
One way AAFMAA supports our Members is through our entirely unique Survivor Assistance Services, which are included with every policy. Through this specialized service, our Survivor Benefits representatives will send notifications and assist in filing claims for survivor benefits to DFAS and the VA on your family’s behalf as needed. Additionally, the team can provide guidance regarding benefits with OPM and other life insurance companies.
Your essential documents are required in order for your beneficiaries to apply for these benefits and entitlements. AAFMAA offers the added resource to store them for future reference— your own secure online Digital Vault.
Tip 5: Read and Review the Policy
When you purchase a new life insurance policy, there is a “free look” period, typically lasting 10 days. During this period, the policy owner can terminate the policy without a penalty. Each policy has a contract, also known as terms and conditions, which outlines how the policy is administered.
Look to see if the premiums and benefits change each year. Ask what the interest rate is each year. Find out what the guaranteed projections of the life insurance policy are.
Once you’ve selected a life insurance policy, periodically check in with yourself to see if the policy still covers your needs, or if your needs have changed. This also gives you the opportunity to ensure all of your contact and beneficiary information remains current.
Most insurance companies provide the policy owner with an annual statement. Keep a copy of it in your files. When you’re an AAFMAA Member, it will be stored automatically in your Digital Vault and available online at any time. Be sure to let your family know about your insurance coverage and how to access it when the time comes.
Start Your Life Insurance Journey with AAFMAA
AAFMAA is proud to offer servicemembers, Veterans, and their families financial solutions for every stage of life. And while life insurance may be difficult to think about, it’s the best way to ensure your family’s security when you’re gone.
AAFMAA Membership Coordinators are experts in our life insurance policies. If you’re thinking about a life insurance policy or just have questions, please don’t hesitate to contact AAFMAA today at 800-522-5221 or get a free quote for coverage right now.