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Do you have right amount of life insurance ?
Saturday, 03 September 2011 08:13

right amount of life insuranceThinking of insurance consumers immediately think term insurance is the best option. Which is not true. Term life insurance, which covers you for a specified amount of time, such as 10, 20 or 30 years, is almost always cheaper, at least in the short-term, than other forms of permanent life insurance. Term life insurance only pays out when you die (that is if you die while the policy is in force), while permanent life insurance offers coverage for your entire life provided premiums are paid when due and may also include a cash value component.

As with every important in life, it's critical that you understand just what you're buying when you shop for term life insurance. Even an inexpensive policy, if not designed to meet your particular financial needs, can result in money wasted.

  1. Shop around on price. Agents and brokers all have their own favourite companies they promote and sell.  For most of us, and for most types of life insurance coverage, either the least expensive company or close to the least expensive is going to be as good as (or better) than other more expensive companies. 
  2. Wrong type of insurance. Research on the available types of insurance. Most consumers should be looking at some form of term life insurance. Purchasing whole life or some other form of permanent insurance when term life insurance is better suited means you’re going to spend a lot more money on life insurance.
  3. Buying too little insurance. This typically goes hand in hand with purchasing the wrong type - get the wrong type of insurance and the only way to make it affordable is to buy too little. In addition, most consumers seriously undervalue how much life insurance they need to provide their dependents an income over a long period of time (say long enough to get the kids out of the house). If you’re spending your entire $50,000 of paycheque each year keeping the household together, how long do you think $250,000 is going to last when you’re not around ? That’s not long enough if you’ve got young kids.
  4. Failing to purchase term life insurance without the conversion privilege. This is not generally discussed and it’s one of the most important….AND it’s available for free on most (but not all!) term life insurance policies in Canada. It is your back door out of a term policy if everything’s gone wrong. It’s free, make sure your term policy has this before you purchase and make sure it’s ‘term to permanent’ conversion, not term to term.
  5. Getting everything guaranteed ? In life insurance marketplace, you should be able to guarantee just about everything. That includes future premiums and not just the internal premiums, but the actual premiums you pay. You can get a fancy investment based calculation that may look good, but is not guaranteed. Purchasing a life insurance product that is not completely guaranteed is completely at odds with the insurance concept.