Life insurance can offer a solid jumpstart towards the future security of your dependents. It may be an intimidating topic; however, it must be considered by every household, particularly by the family’s primary provider.
What is Life Insurance?
Life insurance is a contract between a policy holder and an insurer, where the latter promises to reimburse the named beneficiaries in exchange for a premium or the amount paid periodically to cover the financial risks.
This payout is only applicable when the insured person dies or during a set course of time. It usually varies according to the type of insurance policy. Ultimately, purchasing a life insurance package allows you to proactively secure the financial health of your loved ones in case something unfortunate occurs to you.
Considering its significance, life insurance deserves the attention of each family. To learn more, below are two things you should know about life insurance policies.
- Cost and Eligibility
Life insurance is surprisingly affordable for most consumers. It can be as inexpensive as a few to several hundred dollars a month. Most companies offer an array of packages and payment options to help make fees affordable for the general public. Commonly, the younger and healthier you are, the cheaper life insurance can be. Likewise, take note that the price may go up when you’re a chronic smoker, alcoholic, or are dealing with a certain illness.
Moreover, to identify your premium and be eligible for life insurance, you need to initially fill out a life insurance application. This form must precisely disclose your age, medical history, current health conditions, high-risk activities, driving records, habits, and the like. Then, you need to pass a life insurance medical exam for the contract to be enforceable.
A life insurance health exam is a simple, physical test. It’s a part of the underwriting process or the process where your insurer verifies the details of your application. Apart from this, the medical exam can also reveal additional or new information that could influence your premium. Through your health classification, the insurer can estimate your life expectancy and identify your rate.
- The Right Insurance Coverage May Vary
People will purchase life insurance for various reasons. Hence, when planning to purchase the right plan or coverage, you should understand and take into account your assets, future obligations, and other considerations. To guide you, below are the two most popular insurance policies.
Term Life Insurance
Term life insurance offers coverage for a certain period of time. Oftentimes, it’s called “pure life insurance” because it serves to secure only the future finances of your beneficiaries in case you die prematurely. This type of life insurance is regarded economical for customers who are interested to shop and purchase insurance for their dependents. It’s designed to be simple and straightforward—it’s temporary, has no cash value, and the cost or premium stays the same throughout the term.
With term life insurance, you’re paying the insurance company to protect the financial risk of your death during the term of your policy. When you’re gone, your beneficiaries are reimbursed with the death benefit to cover medical fees, funeral costs, and mortgage payments. In some instances, this can also cover education, childcare, and other crucial expenses. Furthermore, it can serve to replace your income, especially if you’re the family’s breadwinner.
In addition, in cases where you outlived the term, you may be required to get new coverage. If you won’t, your policy may expire with no payout
Whole Life Insurance
Whole life insurance offers permanent, lifelong coverage with a “cash value” support. This type of life insurance is considered more expensive compared to term life and other permanent policies. This doesn’t expire not until you’re gone or you choose to stop paying the premium. Moreover, all throughout the term, your premium stays the same.
The cash value is considered as an investment, tax-deferred account. This means that you no longer need to worry about paying taxes on its interest gains. This interest grows overtime because the company is investing your money for its own benefit. Because they’ve used your money, they’ll compensate you a percentage of it. Also, you’ll surely get a guaranteed rate of return on the policy’s cash value and death benefits.
Furthermore, this money can be withdrawn or borrowed against while you’re still alive as long as you keep on paying the premium amount. This cash value can build a safety net during your retirement, estate planning, and the like while securing the future finances of your beneficiaries.
However, in most policies, if you couldn’t repay the loans with interest, you’ll compromise your death benefits. Consequently, if you abandon the policy, the coverage may be dismissed.
Life insurance is something that most people wonder if they need to get one. Consequently, they oftentimes delay on purchasing it. Nonetheless, bear in mind that getting life insurance is a wise decision which can serve to ease the financial burden of your family when you’re gone. Ultimately, it’s an investment which can guarantee you peace of mind that your dependents will be well.