Life Insurance
The Importance of Life Insurance
People will generally purchase life insurance policies during the period of life when their families depend on their income for financial support. Young families are most likely to consider buying life insurance. In the likelihood that one of the family’s primary breadwinners has a catastrophic accident or a life-ending illness, a life insurance policy can provide the safety net that keeps a family financially stable and most often able to stay in their homes.
Many employers offer life insurance benefits as part of their group policy, but it is always a good idea to carefully consider this option. Another option is to purchase an individual or family policy on your own. Our Best Health Insurance Services can help you evaluate the options available and carefully consider your family’s needs and general health and age.
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Different Types of Life Insurance Policies
There are two main types of life insurance policies: term and permanent. Again, the details of your specific plan will vary by company and plan.
In a nutshell, a term life policy pays a death benefit over a specific period of time, usually 30 years, whereas a permanent life insurance policy offers protection for your lifetime. Let’s explore the different types of life insurance policies further:
- Term Life Insurance: Term life insurance, as the name suggests, provides coverage for a specific term or period, generally ranging from 10 to 30 years. If the policyholder passes away within this term, the death benefit is paid out to the beneficiaries. However, if the policyholder survives the term, no benefit is paid. It is the most straightforward and typically the most affordable type of life insurance.
- Whole Life Insurance: Whole life insurance, a type of permanent life insurance, provides lifelong coverage and has a cash value component that grows over time. This means that, apart from the death benefit, there’s a savings or investment element to the policy which can be borrowed against or cashed in. Whole life insurance premiums are generally higher than term life premiums, but they remain the same throughout the policyholder’s life.
- Universal Life Insurance: Universal life insurance is another form of permanent life insurance that offers more flexibility. It also has a cash value component which can earn interest, but unlike whole life insurance, the policyholder can adjust the premium and death benefit amounts within certain limits. Some universal life insurance policies also offer the potential for higher cash value growth tied to a specific financial index.
- Variable Life Insurance: Variable life insurance is a type of permanent insurance with an investment component. The policy has a cash value account that can be invested in a variety of separate accounts, similar to mutual funds, and the policyholder assumes the investment risk. The cash value and death benefit can fluctuate based on the performance of your investments, but the policy will not lapse as long as premiums are paid.
- Final Expense Insurance: Also known as burial or funeral insurance, final expense insurance is a type of permanent life insurance policy designed to cover end-of-life expenses, like medical bills and funeral costs. These policies usually have lower death benefits compared to other types of life insurance.
- Guaranteed Issue Life Insurance: Guaranteed issue life insurance is a type of permanent policy that does not require a medical exam and guarantees acceptance, usually for individuals in older age brackets or with health issues. However, it tends to have higher premiums and lower death benefits than other types of life insurance.
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How to Choose the Right Life Insurance Plan
While a young family can seem the most likely candidate for a life insurance policy, it is not uncommon for older adults to purchase life insurance, and this may be something to consider. Proceeds from a life insurance policy can help a spouse deal with inheritance taxes or estate taxes, and it is a great way to provide college funds or a financial legacy for children or grandchildren. People consider life insurance in middle age or as seniors for many reasons. There are many senior life insurance plans to choose from at various price points. Most companies have age restrictions impacting which plans may be available to you.
A single person may also consider life insurance in anticipation of future changes in their status or to protect loved ones from financial burdens such as a mortgage, funeral expenses, or business commitments.
Consider your lifestyle when purchasing life insurance. Any death due to risky activities such as skydiving or rock climbing is usually considered an exclusion from coverage. Likewise, if a policyholder’s death results from drug or alcohol abuse, it may also be excluded from the policy.
The best advice to choose the right life insurance plan is to consider your own financial needs and who you would leave behind in the event of your death, and then consult with an expert like the agents at Health Plus Life. We can walk you through your options and help you make the best decision for you and your loved ones.
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Understanding Life Insurance Terms and Conditions
Entering into a life insurance policy can sometimes feel like learning a new language, with specific jargon and terms that might not be immediately clear. However, understanding the terms and conditions of your life insurance policy is critical to ensure you’re getting the coverage you need and expect.
Premiums: The premium is the amount of money you pay to the insurance company for your coverage. It can be paid monthly, quarterly, semi-annually, or annually. The amount of your premium is determined by a variety of factors including the type of policy, the amount of coverage, your age, health, and lifestyle.
Beneficiary: The beneficiary is the person or entity you designate to receive the death benefit (the payout from your policy) upon your death. You can designate multiple beneficiaries and decide how the death benefit will be divided among them.
Death Benefit: The death benefit is the amount of money paid out to your beneficiaries upon your death. When selecting your life insurance policy, you’ll choose the amount of the death benefit. It can be used to cover funeral costs, pay off debts, or provide financial security for your loved ones.
Term: The term of your policy refers to the length of time your coverage lasts. Term life insurance policies have a set term, usually between 10 to 30 years. Permanent life insurance policies like whole, universal, or variable life insurance, provide lifelong coverage as long as premiums are paid.
Cash Value: Some life insurance policies, like whole, universal, or variable life, have a cash value component. Part of each premium you pay goes into this cash value, which grows over time on a tax-deferred basis. You can borrow against it, use it to pay premiums, or even surrender the policy for the cash value.
Riders: A rider is an optional add-on to your policy that offers additional benefits at an extra cost. Common riders include accelerated death benefit riders, waiver of premium riders, and accidental death benefit riders.
Exclusions: Exclusions are specific situations or causes of death that your life insurance policy will not cover. The most common exclusion is suicide within the first two years of the policy. Other exclusions can include death from high-risk activities or from specific health conditions, depending on the policy.
Underwriting: Underwriting is the process insurance companies use to determine the risk of insuring you. This can involve a medical exam, a review of your medical history, and even considering factors like your job and hobbies. The underwriting process helps the insurer set the premium price for your policy.
Grace Period: The grace period is a set amount of time (usually 30 days) after your premium due date during which your policy remains active even if you haven’t paid your premium. If you die during this period, your beneficiaries will still receive the death benefit (though the unpaid premium may be deducted).
Frequently Asked Questions About Life Insurance Policies
Why should I purchase life insurance?
The most important reason to purchase life insurance is to ensure your family’s financial security and the peace of mind that comes with that.
What can life insurance cover in the event of my death?
We sometimes overlook the extent of our living expenses. In the event of your death and the loss of your income, a life insurance policy will cover immediate expenses like funeral costs, uncovered medical costs, car loans, rent, taxes, and more. It will also cover your ongoing expenses like food, housing, transportation, healthcare, and utilities. And looking to the future, it can cover college expenses or your spouse’s retirement.