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How to Pick the Right Life Insurance Policy

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Young family at home.  Mother (20s) holding baby (8 months).  Father out of focus, paying bills in foreground.
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By Dave Ramsey

Dear Dave,

I'm 24 years old, and I have a wife and child. We've been following your plan, and I'm about to buy life insurance. Should I get a 20- or 30-year term policy?

-Derek


Dear Derek,

I think the big question is how long will you need this life insurance. If you and your wife are planning on having more kids in the next 10 years, I'd suggest a 30-year policy. That could put you in a situation of being 34 years old with a new baby. That's not old by any means, but your wife will need 20 years' worth of coverage if this happens, because you'd want the kids grown and out of the house before the insurance term runs out.

But that's just one of your financial goals at this point. You also want to be debt-free.


And you need to ask yourself some other questions. Are you going to have your house paid for 15 years from now? I sure hope you didn't take out more than a 15-year mortgage. Are your kids going to be grown and gone by then? Are you going to have a big pile of money in the bank by then? In other words, where are you going to be at the end of the term?

If 15 years from now you have $700,000 in your retirement account, your house is paid for, and the kids are out on their own, then, if you die, your wife will be fine, financially speaking. But at that time, if you still have kids in the house and your home isn't paid off, then you'd probably need a 20-year policy.

That's how I would look at it. How much longer are you going to need life insurance?

-Dave

Dear Dave,

Should I take advantage of a 403(b) withdrawal in order to buy a house?

-Bryan


Dear Bryan,

I wouldn't do that because it really doesn't accomplish anything. The only money you can take out is what you've put in, and any growth you've experienced has to stay in there. Basically, it's a retirement plan, and I wouldn't monkey around with retirement money to buy a home.

My advice is to make sure you're debt-free and you have three to six months of expenses set aside in an emergency fund. Once you've taken care of those issues, you can pile up a bunch of cash in a money market account toward the purchase of a home. You won't earn a lot of money, but it's a safe place to park your cash when you're saving up for a big purchase.

When it comes to saving and investing, I'm a big fan of mutual funds. The problem in this scenario is that if you start sticking money in mutual funds, then the market is down when you're ready to buy, you could've lost some money. That's not the route I'd want to go if I'm in your shoes, Bryan. I'd forgo the opportunity to make money in order to keep it safe for this goal.

-Dave


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Rahul Sharma

Here are some tips how to choose right life insurance policy.
1) Get multiple insurance quotes that include all options or restrictions so you know exactly what is available.
2) Stay away from any agent or organization that cannot or will not fully explain exactly what you are buying and why.
3) Always remember that you are the client. At no point should you feel bullied or intimidated into buying something that you aren’t sure of.
4) Though you certainly want to purchase adequate coverage, don’t over buy. If your premiums are too high to manage because of the extras that have somehow found their way into your policy, you will be much more apt to allow it to lapse.
Get some more helpful tips at :
http://www.myfinanceandinvestments.com/ways-to-choose-the-best-life-insurance-policy/

November 13 2013 at 3:41 AM Report abuse rate up rate down Reply
Kevin

To get term life insurance, follow these three simple steps.

1) Decide on that term (length of coverage). It should be long enough to see your kids grown and through college (20 -25 years, is typical).

2) Determine the amount of coverage. Use an online insurance needs calculator. There is one that is thorough and easy to use at http://www.qualitytermlife.com/#needs.

Once you've decided on term and coverage...

3) Comparison shop. There is a big difference between costs from insurer to insurer. Again, visit a site where you can get term life insurance quotes from most of the top insurance companies. http://www.qualitytermlife.com

October 30 2013 at 11:20 AM Report abuse rate up rate down Reply
rroutson

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August 27 2013 at 7:28 PM Report abuse rate up rate down Reply
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August 25 2013 at 9:40 AM Report abuse rate up rate down Reply