It must first be recognized that in any life insurance purchasing decision, there are at least two basic questions that must be answered: • “How much life insurance should I buy?” and • “What type of life insurance policy should I buy?
The question contained in (1) involves an “insurance” decision and the question contained in (2) requires a “financial” decision. The “insurance” question should always be resolved first. For example, the amount of life insurance that you need may be so large that the only way in which this needed amount of insurance can be afforded is through the purchase of term insurance with its lower premium. If your ability (and willingness) to pay life insurance premiums is such that you can afford the desired amount of life insurance under either type of policy, it is then appropriate to consider the “financial” decision–which type of policy to buy. Important factors affecting the “financial” decision include your income tax bracket, whether the need for life insurance is short-term or long-term (e.g., 20 years or longer), and the rate of return on alternative investments possessing similar risk.
Related Questions
- It must first be recognized that in any life insurance purchasing decision, there are at least two basic questions that must be answered: • "How much life insurance should I buy?" and • "What type of life insurance policy should I buy?
- I have a hard time putting aside money. Should I buy life insurance as a type of compulsory investments?
- After purchasing a health or life insurance policy with iSelect how do I claim my free return flight?
