Life Insurance purchase is one of the most important decisions of your life. Adequate coverage and the company and agent you choose is a decision that will impact the lives of all your loved ones or family members. Proper advice and the right agent can ensure peace of mind that if something happens to you, your family is taken care of
Life Insurance simply put means life coverage.
It is an insurance policy, and it pays either a sum of money at the policy owner’s death or after set period.
Legally it is a contract or an agreement between the insurance company and person or an entity. The contract stipulates that the insured will pay premiums to the insurance company, which in turn promises to pay a death benefit to the beneficiaries assigned in the policy after the policy owner’s death.
Proceeds can be used by beneficiaries from the policy for whatever purpose they choose. It could be paying everyday bills, mortgage payments, college education, or buying a home. The basic idea behind adequate life Insurance is that loved ones can continue to enjoy the same lifestyle as when you were alive.
There are two types of Insurances,
You will find different variations of these two types offered by insurance companies. Permanent Life Insurance could be whole life, universal life, or variable life. All the permanent policies provide lifetime coverage while term insurance is the word “term” signifies, is for a period of time, it can be 5,10,15 years and so on.
Term Life Insurance
71% of all life insurance sold in the United States is term because it is the most affordable type of insurance.
As Long as long as the premiums are paid in the specified term, you have Insurance. Typically the length of the policy is 5,10,15, 20, 25, or 30 years. However, in some instances, for example, mortgage protection, the term can be for the duration of the mortgage.
If something happens to the policyholder during the policy term, the beneficiaries will get the death benefit if all the policy terms are met.
In some instances term insurance can be converted to permanent insurance if the contract allows. Also, guaranteed renewability can ensure that you can renew the coverage in one-year increments.
As the word permanent signifies, this is coverage for life. If the premiums are paid as per contract, your beneficiaries will get the death benefit no matter what age the policyholder dies.
Permanent life insurance is more expensive than term life because:
It can last for the duration of a lifetime
It usually builds cash value
The cash value component accumulates savings for you on a tax-deferred basis. These savings can be withdrawn or can be borrowed against. If you decide to end the policy, you get the cash value minus any surrender charges. It is long-term savings; hence it takes a few years before the cash value builds up.
There are different types of permanent Life Insurance:
Whole life insurance – these offers are guaranteed death benefit and cash value that also has a guaranteed amount that grows at a guaranteed rate of return. This type of policy also gives dividends which can increase the cash value or can be used to reduce the premium.
Universal/ variable Life Insurance is a flexible kind of permanent insurance where the policyholder can control premium amount, investment, risk, and death benefit within certain limits. The cash value builds on the policy type. For example, cash value could depend on the s and p 500 index. Variable Life Insurance usually has sub-accounts that the policyholder can choose based on their risk profile.
Burial insurance- this is the whole life policy used for burial expenses. It typically is for $5000 to $25000. These policies help to offset the cost of burial and final expenses.
Survivorship Life Insurance- this is also called second to die policy. This policy is primarily used to pay Federal estate taxes or fund a trust. This policy ensures two lives in one policy, usually a married couple. Both spouses pass away; the beneficiaries get the death benefit. It is usually used in large financial planning scenarios
The cost of life insurance depends on different factors. It also depends on the kind of insurance purchased. There is a significant price difference between term and permanent life. Some of the common factors which affect the cost of life insurance are:
Age- the premium depends on the age the policy is purchased; the younger you are, the cheaper it is
Sex- Males usually have a life expectancy lower than females. In fact, females live 5 years longer than males. Therefore, males end up paying more for than females. The only exception is Montana, where insurance companies provide gender-neutral rates.
Health- Your health has a significant impact on your life insurance rates. Most insurers will ask for a medical exam for a higher death benefit policy. Your health determines your life expectancy; hence, if there are medical conditions, you are a premium that can be significantly higher. In some instances, the insurance company might even deny you coverage.
Lifestyle- this also plays a role in the premium amount you will pay. For example, if your driving record is not good, hobbies like skydiving, scuba diving, car racing, or if you are in the front lines in defense forces, then your rates could be higher.
If there is anyone dependent on you, you need Life Insurance. If you have a family or loved ones who depend on you for daily sustenance, education, place to live, then you need to cover yourself with Life Insurance adequately.
The rule of thumb to calculate how much Life Insurance you need is usually 7-10 time your annual income. If you have added expenses of mortgages, college education, or pending loans, then you should supplement your coverage with some term insurance until your debts are paid off.
Hospitalization, medical expenses of car accidents, liability claims, and other business losses are not covered in life insurance.
Suicide within 2 years of purchasing the policy is also not covered.
Check your policy before you purchase because there can be specifications where the death benefit will not be paid, for example, “act of War” or death “while in active Military Service.”
Health Insurance is used to pay for any medical expenses incurred by the insured during their lifetime. It could include hospitalization, regular doctor visits, tests, screenings, or other medical conditions. In case of death, health insurance does not pay a death benefit.
Life Insurance provides death benefits so your family or loved ones can be taken care of after your death. Life Insurance does not pay for any medical condition or treatment.
However, life insurance provides additional Riders that can be added to the critical care policy, where the death benefit proceeds can be used partially to offset medical costs.
In simple terms, life insurance covers death of the insured. If something happens to you, your loved ones get a death benefit specified in the policy. The benefit is only paid if all the requirements are met and the premiums are paid.
Life Insurance is the ultimate contract of trust. You expect a large sum of money to pay your family or loved ones after your death. Therefore, your faith in the insurance company and agent you purchase from will ensure that your loved ones are taken care of.
Purchasing a policy should never depend on the cheapest rate available; it should rely on the company’s ratings its ability to pay death benefits on time and with minimal fuss. The agent plays significant role during this challenging time; they are responsible for ensuring that all the documentation is complete and that the death benefit proceeds reach beneficiaries in a timely fashion.
We at compareaquote.com provide you the peace of mind and experience to ensure a smooth process.