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Posted: 1 May '23

A Guide to Buying a Life Insurance Policy for the First Time

A Guide to Buying a Life Insurance Policy for the First Time

Buying a life insurance policy for the first time can be daunting. There are several policies and so many features that you might not even know where to start. However, if you take some time to learn how life insurance works and what type of policy is best for your situation, you'll find a policy that meets your needs at a price that fits your budget.

In the sections below, we will discuss the main things you need to know when buying life insurance for the first time. We will highlight the different types of life insurance policies, factors to consider when buying a policy, benefits, and more. Call us today to speak to an advisor.

Why Do You Need a Life Insurance Policy?

The first question you always want to ask yourself before choosing a life insurance policy is why you need it. People purchase life insurance policies mostly because they want to secure their families financial future after they pass away. Others may want to protect their businesses or pay off debt and mortgage easily.  

Another critical aspect to consider is how much money is needed to cover your needs and how much you can contribute monthly to the plan. Depending on your choice, the policy can offer your beneficiaries a lump sum payout or monthly payments over time. The policy can also cover burial costs and other end-of-life expenses.

If you're considering buying a life insurance policy for yourself or someone else in your family, make sure that you understand exactly what you need, what the policy covers, and how much it costs. 

Types of Life Insurance Policies 

A life insurance policy or plan is a contract between you and an insurance company. You pay premiums to the company in exchange for protection in case you die while the policy is in force. It's worth noting that most life insurance plans act as an investment vehicle, and you can cash out the benefits while you're still alive. These policies are designed to provide financial security for you and your family. 

But before making any move, you must understand what kind of life insurance policy you should buy and why. Below is a quick overview of the two main life insurance policies: Permanent and term life insurance. 

Permanent Life Insurance 

Permanent life insurance is a policy that does not have an expiration date and lasts your entire lifetime. It is sometimes referred to as whole life insurance. Different types of permanent life insurance policies offer varying degrees of coverage and flexibility depending on your needs.

With this insurance plan, you pay monthly, which is partly used to cover the cost of your insurance, with the rest used to build up your cash value. Based on your needs, you can access the cash value through withdrawals or loans, subject to some conditions. The death benefit often matures after the death of the policyholder. 

Permanent life insurance policies are often the best choice for people who have young families and want to be able to provide for those families financially should something happen to them. They can also be helpful for people who want to save for retirement but don't have enough time to earn enough money through other investing options.

Term Life Insurance 

Term life insurance is a policy with a specified duration, usually anywhere from 10-30 years, depending on how much coverage you need. After this period has elapsed, the policy expires and no longer provides any benefits. That means the policy will only pay the policyholder if he/she dies within the specified term. 

One of the main advantages of a term life insurance policy is that it's cheaper than permanent life insurance because it covers fewer years. It's also more flexible because it allows the policyholders to renew or convert the policy to permanent life insurance subject to some eligibility requirements. 

A term life insurance policy is ideal for people who need coverage for a specified period and a temporary need such as a personal loan, student loan, or mortgage. Their flexibility and affordability make them a popular choice for many people on a budget.

Factors to Consider When Buying a Life Insurance Policy 

When buying life insurance, it's important to understand that many factors will determine which policy is best for you. Here are some of the things to consider when evaluating your options:

  • Understand your goals. Do you want coverage for a certain dollar amount or a specific event? Or do you want to leave an inheritance to your family? Some people want their families to have enough money to pay off the mortgage on their homes.
  • How much coverage will you need? If you have a family and/or dependents, you'll want to buy enough coverage to support them in case something happens to you. But if you're single and don't have any dependents, then a more affordable option would be a better pick.   
  • How long do you need coverage? Life insurance policies typically come in five-year increments, but some people may only need coverage for two years or less. If that's the case, it might be better to buy a customized term policy than a whole life insurance plan.
  • Health. Your health will affect how much money an insurer is willing to pay out in case of death or disability. If you're in good health and willing to submit medical records, there's a greater chance that your claim will be paid out without question or delay. However, if you've been diagnosed with serious conditions or illnesses, such as cancer or heart disease, disclosing them before purchasing a policy is crucial. That way, the policy provider can factor them into your premium rate.
  • Insurance company. When choosing an insurance company, ensure they are reputable and trustworthy. You don't want to choose an insurance company that has been involved in lawsuits or scandals because those companies might not be around for long. Different companies also offer different benefits and terms. Some may even offer discounts if multiple policies are purchased at one time. So, you want to compare options before settling on one policy provider.

Benefits of a Life Insurance Policy 

A Guide to Buying a Life Insurance Policy for the First Time

A life insurance policy can be valuable, especially if you want to protect your family or business. Here are some of the many benefits of a life insurance policy:

  • Peace of mind. If you were to pass away unexpectedly, life insurance would provide financial assistance for your family members to get back on their feet while they grieve their loss.
  • Financial protection. The right life insurance policy could help protect your loved ones' financial future by replacing lost income if you cannot work due to illness or death. Your family will have access to funds that they can use to cover funeral costs and other expenses related to your passing.
  • Tax advantages. Depending on the type of policy you choose, the premiums or/and the resulting cash value may be tax deductible or exempt from federal income tax if used toward retirement savings accounts or education expenses.
  • Estate planning. Life insurance policies can be used as part of an overall estate plan to minimize federal estate taxes upon death. 

Seek Guidance Whenever Necessary 

Getting a life insurance policy is a major decision. Before choosing a policy, it's important to consider why and who you are buying it for. That said, there are a lot of factors to consider, and it's something you should take your time with. You should also consult an experienced professional who can help you determine what kind of coverage is best for your specific needs. Call us today to speak to a Vistaplan advisor!


About the Author - David Motkoski

David Motkosk At the Helm of Vistaplan Financial Group

David is a well-respected insurance advisor with over 30 years of experience helping healthcare professionals, business owners, and their families secure their financial futures. He takes the time to make certain his clients understand the life, disability, and health insurance products they are purchasing, so they can make the right choices for their budgets, plans, and futures. CONNECT WITH ME ON LINKEDIN

Life & Disability Insurance for Alberta Health Care Professionals, Business Owners, and Their Families Since 1983