Life Insurance: What You Need to Know
by Drew Madison
Most of us here the phrase life insurance and think the process is simple: you get life insurance to protect your family in the case of your death and that’s it. However not every person should make the same decision when it comes to life insurance. To make sure you come out on top in the process, follow a few simple steps.
Life Insurance: The Basics
In short, yes life insurance is as obvious as it sounds, an individual pays a life insurance company a monthly payment (called a premium, or cost of the insurance policy), and in return that insurance company contractually promises to pay an agreed upon amount (called a claim) to the family (usually spouses and children) in the case that the insured dies or in some cases becomes seriously ill (usually terminally ill).
Certain types of life insurance can also provide tax-free investment returns to those that continuously add capital beyond their premium each month or year. Simply put, certain life insurance policies can actually make for sufficient long-term investment vehicles.
Primary Types of Life Insurance:
- Term – term life insurance consists of a policy that holds for a specific number of years, in which premiums remain level throughout the life of the policy.
- Permanent – permanent life insurance is contracted until an insured person’s death and as a result carries a higher premium payment. There are two main types of permanent life.
There are two kinds of permanent insurance.
- Universal Life Insurance: This is usually called the flexible form of long-term life insurance because it allows the holder to take advantage of both life-long life insurance coverage, as well as tax-deferred gains on any premiums they pay above their monthly minimum payment.
- Whole Life Insurance: Whole life insurance is much more guaranteed than universal insurance and a safe bet for the long-term buyer of insurance.
Note: there are a few other sub-types of insurance related to each of the types listed above, but for the purposes of making an informed decision on purchasing quality life insurance the three basic primary types are sufficient. Ask an agent from a trusted insurance firm with regard to this level of detail.
How to buy life insurance: Step-by-Step Instructions
Step 1: Do business with a trusted insurance company: especially for life insurance (this is something you’re likely to own 30-50 years into the future!) it’s helpful to buy from a trusted brand. We’ll make it easy for you on that front. Here is a starter list.
- State Farm
- New York Life
That is a good start to searching, although there are definitely other possible trusted resources.
Step 2: Get a Quote: – you are likely to see information mentioning to “get a quote”. This means that the life insurance firm will ask you a series of questions related to your personal information (age, daily activities, smoking/drinking habits, overall lifestyle, and current financial situation.) These questions are aimed at assessing the risk of insuring you from the companies standpoint. For example, if you are a heavy smoker, you are likely to carry more risk (higher chance you will die and the insurance company will have to pay your loved ones a claim). For that reason, your monthly premium payment will be higher than a non-smoker.
Step 3: Stop and Think: Once you are given a quote, take some time and think about things. Consider other possible options (for instance, I would recommend researching information on a few websites to compare quality and pricing.)
Step 4: Ask Around: Speak with friends and family that have life insurance, and speak with an independent agent (not associated with the firm you are purchasing from) about the best option for you at the time.
Step 5: Important Note: It is possible that you may not need life insurance at your given point in life, although again we recommend that anyone supporting a family financially take the proper steps to ensure they are protected, and life insurance is the best way to do that.
In the end do not stress too much about this! You have to think about the time spent on obtaining life insurance vs. time spent on other aspects of your life. Once you know you are safe and sound with a life insurance plan, spend time with your family and live your life to it’s fullest.