Life Insurance
Giving Your Loved One’s Protection
Even amid your busy everyday life, have you ever stopped and thought about what might happen to your loved ones if the unexpected happens to you? You will not always be there to provide for your family, but you can protect them by purchasing a life insurance policy. Contrary to common belief, life insurance isn’t as expensive and complicated as most people may think. Your life insurance will ensure that your surviving spouse, children, and family members are well-provided for even when you’re not there.
Life insurance is one of those things that everyone needs; however, very few actually have it. Purchasing life insurance can be intimidating; knowing where to start can be sometimes hard too.
Not to mention, it can be very easy to ignore purchasing a life insurance policy when you are young and relatively healthy, but, the longer you wait, the greater the chances of something happening to you before you purchase your policy. You can’t afford to wait any longer. The following information can greatly help you simplify the decision-making process and get to the right choice for you and your loved ones.
The Common Types of Life Insurance
Choosing from so many different types of life insurance policies can be confusing. Depending on how long they remain in effect, life insurance can be divided into two major types: term and permanent life insurance policies.
Always keep in mind that the availability of an insurance policy highly depends on factors like health, age, type, and amount of insurance purchased. Make sure that you are insurable and learn more about the options before implementing any strategy involving insurance.
Term Life Insurance
Term life insurance gives a death benefit if the insured passes during the specific time frame given within the policy. This is the most basic type of life insurance and the most affordable. Policies are usually bought for a span of one to 30 years. The insurance premium is based on the insured person’s health and age. Once the term expires, you can renew the policy or invert to permanent coverage. Your premiums will be recalculated for your age at the time of renewal.
When shopping for a term life insurance policy, select a term that will coincide with the years you will be paying the bills, and want life insurance coverage in case you die early. Additionally, buy an amount that your family would need if you are no longer there to provide for them. Term life insurance coverage is suitable for young couples with children, as they can get large amounts of coverage for a reasonably low cost.
When a parent dies, the benefit can replace a lost income. People who temporarily need a specific amount of life insurance are also good candidates for term life insurance. For instance, you may calculate that by the time your insurance policy expires, your beneficiaries will no longer need extra financial support, and you will have had enough liquid assets to self-insure.
There are two types of term insurance policies: the level term and decreasing term insurance policies. Level term insurance means that the death benefit remains the same all through the duration of the policy. On the other hand, decreasing term life insurance means that the death benefit drops in one-year increments throughout the policy’s term.
Whole Life Insurance
Just like other permanent life insurance policies, whole life insurance offers coverage and includes investment components known as the policy cash value. Whole life insurance covers you for as long as you live and you pay the premiums on time. Cash value is a payment that is set aside with every payment you make; think of it as a nest egg for the future. This payment can be received when the policy is cancelled. The cash value builds with time and allows you to withdraw it or even borrow against it.
There are various factors that affect the cost of a whole life insurance policy: your age, health, and life expectancy, and the amount of coverage you purchase. Keep in mind that any interest that is earned beyond the death benefits is considered taxable income. Whole life insurance coverage is known to be the best option to insuring permanent things like funeral expenses, estate planning, and supplemental retirement income, as well as surviving spouse income.
With whole life insurance, your returns are guaranteed; the life insurance company usually sets a guaranteed minimum growth rate. This rate varies wildly every year since it is an interest which is actually a dividend from your life insurance company’s profits.
Universal Life Insurance
Universal life insurance policy (UL) is a type of permanent life insurance with an investment saving element and low premiums. This type of insurance policy is sometimes referred to as adjustable life insurance because it offers adjustable premiums. This means that you will be able to access some of the cash value and utilize it to adjust your annual payment and once the money has accumulated in your cash value savings account, you will be able to vary the frequency and the amount of your premiums.
Universal life insurance is more flexible than whole life insurance policies. Part of your monthly premiums of this policy goes to the death benefit while the other part is invested as savings. You can use underwritten approval to increase the death benefits of the policy to include the cash value. It is always important to keep checking your cash value since it is subject to the changing market interest rates.
See Which Policy Is Right For You
Here is a simple flow chart to help you figure out which insurance type may be best fitted for you, along with extra information on the policy types:
The Reasons To Buy Life Insurance?
If you believe you don’t need a life insurance policy, you’re right. A life insurance policy isn’t meant for you but for your loved ones. Upon your death, will your loved ones afford to pay the bills? Will they have enough funds to pay rent? Will they afford to foot the high funeral costs and medical bills? At a time when your loved ones are emotionally stressed, financial problems can quickly pile up, especially if they have to re-enter the workforce, move, or make other lifestyle changes. Your life insurance will protect your family from handling large financial problems when they aren’t equipped to do so.
Without a life insurance policy, your loved ones will experience financial problems for several years to come. The decisions they will make will create additional expenses; for instance, when your non-working spouse decides to return to the workforce to provide for those you leave behind, she may need to pay for daycare. With life insurance, your cover can provide for all these expenses. Additionally, it can provide stability to your children – for example; your children will be able to go to college and pursue their dreams.
Apart from providing for your loved ones, your life insurance can help continue what you started. If you are a business owner, your life insurance policy will ensure that your employees and vendors are paid in case you pass on unexpectedly.
Life Insurance Benefits: Different Ways to Use Them
Final Expenses
Final expenses like cremation, funeral costs, and medical bills can be paid off using life insurance benefits.
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Eliminating Debt
The death benefits in life insurance can be used to pay your mortgage so that your family won’t have any worries.
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Replacing an Income
Life insurance benefits can help replace your income in case you pass away. The benefits can be used to cater for everything you did.
Long-Term Care
You can use your life insurance policy to help pay for long term care services. You don’t have to worry because you don’t have a long-term care insurance plan. You can pay for long term care services using your life insurance policy.
Federal Estate Taxes
Depending on your state of residence and the amount your family receives, they might face a state tax upon getting their heritance. Life insurance benefits may be used to offset this cost for your family.
Inheritance Or Donation
You can ensure your humanitarian goals are met after you die by using your life insurance policies to create your favorite charity as a named beneficiary.
How Much Life Insurance Is Right for You?
When you are deciding the amount of life insurance you need, always consider your financial obligations. However, the first thing is to always determine if you really need an insurance cover.
What to Ask Yourself Before Buying a Policy
Sometimes people feel unsure about when to buy an insurance policy. The process can be a bit intimidating, as well as complicated. Ask the appropriate questions to an insurance agent and research your options carefully.
What is my current life stage?
Certain life stages affect the type of insurance you can buy. Are you married? Do you have children? Are you single? Are you retiring? Re-examine your stage of life before choosing the best life insurance policy.
Are my priorities to build long-term wealth?
Are you buying an insurance policy to save money, or are you buying a policy for a specific period of time? The answer to this question will help you decide on which life insurance cover is suitable for you.
How many dependents am I supporting?
Financial obligation is a key factor that affects the type of policy you choose. How many people are you going to support? Death can bring financial hardship to your dependents without the correct life insurance coverage.
What’s the life insurance payout size will my family need?
When determining the amount of life insurance that your family will need, it is important to calculate the total amount of savings that your family would use if you passed away. This will be affected by factors like debt, funeral expenses, and mortgages.
What can I afford to pay in premiums?
The purpose of a life insurance policy is to provide for your family even after you are gone. Life insurance changes drastically by age, and young applicants should choose a policy that has higher coverage and lasts longer.
What can I do to improve my chances of getting a good rate?
Your health status is a significant factor that determines the premium rate you will get. A healthier person is less likely to die and is cheaper to insure. Nicotine use and other illnesses can result in higher premium rates.
Is disability insurance necessary?
Disability insurance helps you meet your future financial needs when you are unable to work due to an injury or illness.
Choosing a Life Insurance Policy
After thinking about the amount of coverage you need and the type of lifestyle you want to leave for your loved ones, you will need to choose the right life insurance policy which can be a confusing process. Here are some guidelines that can help you narrow down your options.
1. Consider the type of policy you want
Do you need insurance for a specific amount of time to be able to pay for your kids’ college education or do you want a long term policy that will insure you for as long as you live? Knowing the factors that affect the premium rate of a policy will greatly help you choose the best life insurance policy.
2. Deciding the amount of coverage you’ll need
The only way to determine the amount of coverage you will need is to buy a life insurance policy that is equivalent to a certain multiple of your salary, for instance, seven or even ten times your yearly income. This multiple depends on the assets you have.
3. Pick a trustworthy agent and/or company
It is always advisable to do some homework on local insurance companies. Check out the ratings of the company, also check for the company’s reviews. The best company will offer you with the right recommendations, products as well as services. It should have a good record and the financial capacity to meet its financial responsibility.
4. Think about how your needs will change over time
A life insurance policy is something you will need if you want to build a strong financial foundation in your 20s. At this age, life insurance is a cheaper option for you. As you grow older and get children, a permanent life insurance policy will be the best option. It is, therefore, important to choose an adjustable insurance policy.
Shopping for a Policy: Tips
Shopping for a policy can be a very daunting task. However, you can use these few simple steps to make the process less complex.
Assessing the insurance company’s rating
Always be careful when comparing the rating of a company and remember that it is just one step of considering a purchase. Don’t assume that you should buy your policy from a highly rated company. The company should also have all the other features you are looking for.
Comparing the prices
There is a huge difference between term life premiums and permanent life insurance premiums. Compare the premiums of a company to similar products of another company. Always prioritize your coverage needs when comparing prices. Buy an affordable policy that you will be able to hold on to for long.
Don’t let people oversell you
Sometimes, insurance agents tend to oversell insurance premiums with unrealistic promises. Don’t end up purchasing the insurance policy that will not work for you. Always get a second opinion from a qualified insurance expert.
Learning the vocabulary
Life insurance uses terms that can be confusing. Terms like premium, dividend, and beneficiary among many other terms. These terms can be hard to understand, especially if you don’t know the meaning. Make an effort to learn these terms to have a better understanding of the best life insurance policy.
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