Questions to Consider When Purchasing Life Insurance
[social_share]Life insurance is typically purchased with more than just the policy holder in mind. It can be a great way for policy holders to support loved ones or dependants after they have passed on, lessening the financial struggle that could potentially be faced in the policy holder’s absence. There are several factors that must be considered to ensure that a life insurance policy provides adequate coverage for the beneficiaries. Below are questions that consumers should consider when purchasing life insurance.
- Funeral expenses. When purchasing a plan for life insurance coverage, consumers should review whether or not they want the plan to cover the costs of their funeral. These costs generally include burial fees, gravestone purchases, funeral parlour fees, and so on. While many people use their life insurance to cover such expenses, others may want to consider whether their financial situation would be better served by relegating these expenditures to savings or cash reserves. By electing to pay for funeral expenses with a portion of their life savings, consumers can afford to arrange a cheaper life insurance policy. This lowers the monthly premiums and raises the overall expendable income.
- Estate taxes. While there is no true estate tax in Australia, there are certain transactions that can occur which relate to a deceased person’s estate. These transactions can place a burden on the deceased person’s estate or can be left for the estate’s executor to contend with. With this in mind, another question for the consumer to consider when purchasing life insurance is whether they want a bigger payout in order to satisfy such provisions on their estate, in the event that they are levied. Failure to do so can leave the executor of the estate in a pinch, which could have been avoided with a slightly higher premium and the resulting larger cash out.
- Payout distribution. If a consumer purchases a life insurance plan with multiple beneficiaries and wishes to leave a sizeable payout for each, they must consider the impact this will have on their monthly premiums. While it is, of course, honourable for a policy holder to want to provide for each of their dependants or loved ones, they may not be able to provide the future payout sizes that they want to without burdening their monthly debt in the present. Because of this, consumers should question whether their families and loved ones will be better off with a cash reserve that is built up over time. A cash reserve can then be divided and added to the life insurance payout which is due to each beneficiary upon the policy holder’s death, thus increasing their overall profit.
