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Things to Know When You Want to Buy Life Insurance Products

Insurance is one of the pillars of personal finance that every household should consider. It may even be vital for most families. However, even though there are so many choices of types and the ease of how to apply for insurance, there is still a lot of confusion, even doubt, about life insurance.

Life Insurance Products
Perhaps this is due to the complexity of the concept of life insurance, the explanations of the insurance officers themselves, or simply a subconscious tendency to avoid any topic that comes into contact with our death. However, if armed with the right information, you can simplify the decision-making process and arrive at the option that is best for you and your family.

Guide to choosing the right life insurance

To help you, here are 4 things you need to know before you start hunting for life insurance.

1. Know your reasons for applying for insurance

Life insurance is designed to provide a family with financial security after the death of a spouse or parent. In addition, life insurance can provide peace of mind for policyholders. Life insurance coverage can help pay for mortgages or property, tuition fees, finance retirement, fund inheritance, and is a key part of estate planning.

That is why life insurance is so important for children from families with a single source of income, but it will also be important for spouses who are not working.

If you are in charge of other people financially, you need life insurance. It is almost obligatory if you have a married partner or parents with children who are still dependent on your finances. But you may also need life insurance if you are a divorced spouse, child of a dependent parent, sibling of an adult dependent on you, an employee, business owner, or business partner.

If you retire financially stable or financially independent, and no one will experience financial difficulties if you die, then you don't need life insurance. However, you may want to consider applying for life insurance as a strategic financial tool.

2. Determine the amount of coverage you need

The amount of money that will be received by your family or heir after your death is called a Death Benefit claim. Simply put, to determine a rough estimate of your many Death Benefit by multiplying your annual salary by eight.

Another way is to multiply your annual income by the number of years remaining before your retirement benefits begin to be harvested.

A more detailed method is to add the estimated monthly family expenses needed after your death. Don't forget to include a one-time death care fee and continuing costs, such as a child's tuition or home loan. Take the total continuous cost and divide by 0.07. This means that you will want to earn around 7% of the income each year to cover these ongoing costs. Add that result to the amount of money you need to cover one-time costs, and you'll get a rough estimate of how much you'll need for life insurance.

Keep in mind, a rough calculation like this only provides a shadow. Using these estimates, however, will help a lot when you are required to have discussions with professional insurance agents in the real world.

3. Determine the right policy

Once you know how much coverage you will need, you can start thinking about the best type of insurance policy to meet your needs.

A policy is a contract between a life insurance company and an applicant (or sometimes an object, such as a trust fund) that has a financial interest in the lives and welfare of others. The insurance company will collect the premium from the policyholder and pay the claim upon your death. The difference between the premium saved and the amount spent to pay claims is the company's profit.

There are two policy options: term life insurance or permanent life insurance. The difference:

Term life, aka term insurance, is the simplest and most commonly found. Life companies design premium policies based on the probability that the Insured (you as the premium payer) will die within a certain period of time, based on a medical examination — generally 10, 20, or 30 years. Premiums are guaranteed for the entire chosen term, after which the cost of the policy becomes too high to maintain or you let it go. This means you are very likely to be paying premiums for decades and not making any profit.

The good news, it means you are still fine and defeated the "destiny" death sentence determined by the company.

Permanent life insurance, designed using the same time of death calculation as term life insurance, but also includes a savings mechanism. This mechanism, often referred to as “cash value”, is designed to help policies last longer.

Apart from term and permanent life, there are many other types of policies on the market. It is recommended that you explore the many options before starting to make up your mind.

4. Wisely choose an insurance company

You want to make sure you choose an insurance company that can support you stably, and who will invest your premiums wisely to pay off claims from policyholders. It's a good idea to thoroughly research and compare all the perks and benefits of your choice of insurance company, for example Accidental Death & Dismemberment Benefit (AADB, an additional insurance that will provide compensation if the Insured party experiences a fatal accident that causes death, or serious crippling injury — such as burns or loss of organ/limb function due to an accident).

Alternatively, you can consult a financial consultant who can help consider all your financial factors, your needs, and the needs of your family.

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