Life Insurance Basics: Everything You Need to Know with HealthPlusLife
September 1, 2023 | Johanna Karlsson
It’s one of the best and most important ways to provide financial security to our loved ones after we’re gone. Still, misconceptions and half-understandings continue to fog a clear understanding of life insurance for so many people. There are terms to consider, and premiums, and policy riders, and beneficiaries. While there are a lot of pieces to this insurance product, learning more about life insurance basics can help you make the best decisions for what kind of coverage you and your family need — and HealthPlusLife is always here to help you. We can work with you to get peace of mind and ensure your needs are covered. Let’s get started with understanding the choices in health insurance, such as HMO vs. PPO plans, so you can make informed decisions.
If you’re wondering why do I need life insurance, first, you’ll want to understand life insurance basics — including what it is. At its core, consider it a safety net for people and their loved ones. It’s a contract between a person (policyholder) and an insurance company — an agreement to pay regular premiums in exchange for a death benefit to be paid to designated beneficiaries after the policyholder dies.
Incorporating life insurance into financial planning is more than just preparing for the unforeseen. It’s about crafting a legacy and ensuring that your financial goals for your loved ones are realized, even if you’re no longer around to witness them.
Debt Repayment: Any outstanding debts, such as a home mortgage or personal loans, can be settled with the help of the death benefit, preventing the financial burden from falling on family members.
Income Replacement: Especially crucial for primary breadwinners, life insurance can replace the income lost, ensuring that the family’s standard of living remains unaffected.
Future Savings: Whether it’s for your child’s education or your spouse’s retirement, the payout from a life insurance policy can be directed towards future savings goals.
Estate Planning: Life insurance can serve as a tool to address estate taxes, ensuring that heirs receive the intended inheritance.
Peace of Mind: Beyond the tangible financial benefits, life insurance offers the invaluable gift of peace of mind. Knowing that your family will be financially secure, no matter what, provides an immeasurable sense of relief.
At HealthPlusLife, we believe in the transformative power of informed financial planning. Life insurance isn’t merely a policy; it’s a pledge—a commitment to the well-being and financial security of those you cherish most.
Different Types of Life Insurance: The Basics
Life insurance is not a one-size-fits-all proposition, and it has to be tailored to meet your individual financial needs and situations. With so many options available, it’s helpful first to understand a major part of life insurance basics: the types of insurance that are available.
Term Life Insurance: As the name suggests, this provides coverage for a specified term or duration, typically ranging from 10 to 30 years. If the policyholder passes away within this term, the death benefit is paid to the beneficiaries. Simplicity is a major advantage here, as is affordability — generally, term life offers higher death benefits at lower premiums, especially if purchased at a younger age. But once the term expires, coverage ends, and even if it can be renewed or converted to permanent insurance, your premiums may rise.
Whole Life Insurance: This offers lifelong coverage — as long as premiums are paid — coupled with a cash value component that grows over time and can be borrowed against or withdrawn in specific situations. However, lifelong coverage and a cash value component often make whole life policies more expensive than term life.
Universal Life Insurance: This combines a death benefit with a savings component, but it’s unique because of its flexible premium structure. Policyholders can adjust their premium amounts (within certain limits), offering greater control over cash flow. The savings component earns interest and often has a guaranteed minimum rate, another attractive feature of this type of policy. However, a universal life policy’s flexibility also makes it more complex, so it’s important to understand the terms fully.
Variable Life Insurance: This allows policyholders to allocate a portion of their premium to various investment options, introducing market-driven growth potential and allowing people to diversify by selecting from a range of investment options, like stocks and bonds. Also, earnings on investments grow tax-deferred until withdrawn. However, the policy’s cash value and death benefit can fluctuate based on the performance of the chosen investments, so there is market risk here. Variable life policies also can be more expensive due to investment management and other fees.
How Does Life Insurance Work?
The core principles of life insurance basics are simple. Essentially, it’s a pact between you and the insurance company, with you agreeing to pay them regular premiums in return for your beneficiaries receiving a sum of money after your death. This sum can act as a safety net, covering lost income, clearing debts, or even funding your child’s education. Let’s break down the primary components of how a life insurance policy works.
Premiums: The amount you pay the insurance company for your policy. Premiums can be monthly, quarterly, or annually. The cost depends on several factors, including age, health, the type of policy, and the death benefit amount.
Beneficiaries: The individuals or entities you nominate to receive the death benefit. Beneficiaries can be family members, friends, trusts, or even charities.
Death Benefits: The sum paid to beneficiaries upon the policyholder’s death. This amount is usually tax-free and can be used by beneficiaries as they see fit.
When you apply for a life insurance policy, the insurance company will evaluate the risk of insuring you — a process called underwriting. Here’s what happens:
Application: You’ll complete a detailed application, disclosing information about your health, lifestyle, occupation, and family medical history.
Medical Examination: Often, a medical exam is required. This could include blood tests, urine tests, and other diagnostics.
Risk Assessment: Based on your application and medical results, the underwriter categorizes your risk level. Age, health conditions, smoking status, and high-risk occupations can influence premiums.
Policy Approval: Once the underwriting process is complete, the insurer will provide policy terms. Depending on the risk assessment, your premium might be higher or lower than initially quoted.
Policy riders are optional add-ons that allow policyholders to customize their life insurance. These come at an extra cost but offer enhanced benefits or adapt the policy to specific needs.
Accidental Death Benefit Rider: Pays an additional death benefit if the policyholder’s death is due to an accident.
Waiver of Premium Rider: Waives the policy premiums if the policyholder becomes disabled and cannot work.
Child Rider: Provides coverage for the policyholder’s children under one rider, rather than taking separate policies for each child.
Critical Illness Rider: Pays a lump sum upon diagnosing specific illnesses like cancer, heart attack, or stroke.
With a deeper understanding of the inner workings of life insurance, HealthPlusLife aims to empower you to make informed decisions. After all, the ultimate goal is to provide peace of mind and financial security for your loved ones.
Choosing a life insurance policy isn’t a one-size-fits-all process. Your life circumstances, responsibilities, and future goals all influence the amount of coverage you need. In a sea of options, HealthPlusLife is here to guide you in tailoring a plan that ensures your loved ones are taken care of, even in your absence.
To accurately gauge the coverage you need, start by evaluating your financial commitments. Sum up all your debts, from credit card balances to home mortgages. Ensuring your insurance can cover these debts will prevent them from burdening your family. Also, estimate your family’s yearly expenses, including groceries, utilities, and other necessities. Consider how many years they’d need support without your income. Don’t forget about future costs, like children’s education or marriage. Also, remember coverage for end-of-life expenses like funerals, medical bills, and estate taxes.
For single people, even if you have no dependents, covering your personal debts, medical bills, and funeral expenses can prevent financial strain on your relatives.
Consider the costs of raising a child to adulthood and potential college fees if you’re a parent. If you’re a primary earner, the financial impact on your family could be significant in your absence.
And business owners will want to ensure they’re protecting their business’s continuity. Consider coverage that can offset business debts, protect against the loss of a key employee, or fund a buy-sell agreement.
Life Insurance Basics: Reevaluating Your Coverage Over Time
Your life isn’t static, and neither should be your life insurance. Periodically reviewing and adjusting your policy ensures it aligns with your current situation. Here’s when you might reconsider your coverage:
Major Life Events: Marriage, childbirth, or buying a home are all signals to reassess your insurance needs.
Changes in Financial Obligations: Paying off a mortgage or other significant debts might mean you need less coverage. Conversely, taking on new debts or responsibilities might necessitate an increase.
Business Growth or Change: If you’re a business owner and your company grows, shrinks, or undergoes significant changes, recalibrate your policy to match.
Retirement: Your needs can shift when transitioning from working life to retirement. Perhaps your children are independent, or you’ve paid off most debts, allowing you to adjust your coverage.
With HealthPlusLife, you’re never alone on this journey. We’re here to help simplify the complexities of life insurance basics, ensuring you make choices that offer security, peace of mind, and the best fit for your unique circumstances. Get started today by calling us at 888-828-5064 or contacting our team online. We’re ready to help you review your current coverage and consider your options to make sure you’re getting just the life insurance policy that you and your loved ones need.
Johanna Karlsson Johanna Karlsson is a veteran health and life insurance professional licensed in 50 states. She relocated from the countryside in the south of Sweden and has not looked back. After coming to the United States to attend university, she gained her degree in Public Relations. She brought her public relations skills to a local international health insurance where she discovered a new passion in insurance. After years with that company, Johanna now joins HealthPlusLife to help build a team of licensed insurance agents ready to meet your insurance needs.
