Nobody likes thinking about life insurance, but the truth is having one ensures that your loved ones will not be left in a financial bind if you pass away unexpectedly.
Do you want to protect your family in case of an emergency?
If so, keep reading and discover life insurance tips that will help you make the right choice on the best insurance policy.
So what are the most important points to consider when shopping for life insurance?
Here are they are: –
- What type is best for me?
- How much should I spend on the policy?
- Should I spend less and invest more?
- How do I decide on an insurance provider?
If these questions have crossed your mind about life insurance, then read on!
We’ll walk you through some important decisions while considering what would be best for you.
Furthermore, If you are diagnosed with a fatal or disabling condition, a life insurance policy will give you peace of mind.
In addition, some types of life insurance allow you to cash out your policy in the event of an emergency.
Before we go into the different types of insurance, let’s look at what life insurance is.
In This Post
What Is A Life Insurance?
Life insurance is a type of insurance where the insurer pays your beneficiary a sum of money if you die during your policy term.
For example, If you are married, your spouse will get this money, or if there is no spouse, it goes to your parents.
One thing to note is the amount that they get varies depending on how much you pay for your monthly premium.
So basically, you will have a contract with an insurance provider where you pay a premium monthly or annually.
In exchange, the insurance company agrees to pay a predetermined sum of money to the persons or individuals you name after you die.
Why Do You Need Life Insurance?
There are lots of reasons why you need life insurance here are a few…
A life insurance policy offers protection, savings, and extra benefits too
It ensures that when you pass away, somebody is going to be protected financially.
So, If there’s somebody who depends on you financially like your spouse and children, they can still go to school and support themselves financially in any way necessary.
This also lets you plan in advance, so when there is an emergency, your family is provided with financial security, and your investments and other assets will be managed by someone you trust.
There will be no issues while the beneficiaries do not have to worry about their future.
I tell you what, though,
Life insurance is not one-size-fits-all.
It’s important to have an accurate understanding of what type of life insurance coverage you actually need for your family.
- Are you financially secure?
- Do you own a home?
- Are your children still in high school or college?
- Have you refinanced to get rid of other debts and lower your monthly mortgage payments?
These things could significantly change the type of life insurance coverage that would be best for you.
Thankfully, you can pick different life insurance options with varying levels of protection designed to meet your specific needs at different stages in life, and I will be telling you all about it in this article.
Types of Life Insurance
There are different types of life insurance to choose from. Here are the most prevalent types of life insurance :
1. Term Insurance
Term life insurance is a more cost-effective choice.
With term life insurance, clients often acquire coverage for a life insurance term, for example, twenty years, though the period of the policy can vary.
Term insurance gives you pure protection for a certain period/ number of years.
It provides a death benefit if you die within the term period.
In addition, the premiums are usually cheaper than other policies because it does not include a savings element, so term life insurance policies typically only include a death payout.
When your policy ends and the life insurance term elapses, most insurance companies will allow you to renew it, but the prices will be re-evaluated.
So If you have a restricted budget and want to provide a death benefit for your loved ones, term life insurance coverage is your best alternative.
So, in a nutshell, the term insurance is just like any other life insurance, but instead of paying monthly premiums until death, the premiums are paid until the policy term ends.
Usually, If one passes away during that time stated in the term life insurance policy, their beneficiary gets the money.
2. Permanent Life Insurance
What Is Permanent Life Insurance and How Does It Work?
Permanent life insurance covers you for the rest of your life.
Some employers may also provide permanent plans to anyone over the age of 65.
Permanent life insurance is divided into two categories.
- Whole life
- Universal insurance
With whole life and universal life, you get more than just insurance protection; you also get an investment plan.
But, these two types of policies give you a chance to grow your money through investments.
a) Universal Life Insurance Coverage
This life insurance has a flexible premium.
Unlike the term life insurance policy where all that changes is the sum insured, in universal life insurance, the policyholder decides how much they want to pay and when so no fixed premium payment needs to be paid.
Also, You can choose to have a fixed amount or an amount that will increase every year according to inflation.
The universal life insurance coverage is best for someone who has a high budget and wants to invest in something with higher returns.
And another thing is, you can accumulate cash value with this sort of policy.
Interest is paid on the cash value of your policy, and most policies have a minimum guaranteed interest rate.
b). Whole Life Insurance
In this type of insurance plan, you are insured throughout your entire life.
Still, the premiums stay constant, unlike universal life insurance, where it keeps increasing even after your payments stabilize.
The payments are also more than what you would pay for term life insurance coverage.
However, if you pass away within the first few years of the policy, the insurance company will not pay anything.
If you pay the premiums, a whole life insurance policy will cover you for the rest of your life.
The benefits include
- a guaranteed payout for your loved ones,
- fixed premiums, and
- cash value (which means a portion of your life insurance builds up cash value you can borrow against).
A whole life insurance policy is a superior long-term investment because your premiums will never go up, and you will always be able to borrow against a portion of the cash value of your policy.
3) Variable Life Insurance
This type of policy involves mutual fund investments with your insurance coverage.
It comes in two forms,
- indexed universal and
- equity-indexed universal.
The difference between these two is that indexed universal provides you with a return based on stock market performance while the other returns the increase in S&P Index (S&P 500).
If your target is to grow money for retirement purposes, this might be something you should check out.
However, if inflation or high risk is not part of your financial goals, don’t even bother looking at this option.
Who needs Life Insurance?
Now that we have looked into the types of life insurance, who needs life insurance?
You need life insurance if somebody depends on you financially, like children, parents, wife, etc.
So just about everyone.
Most people spend months buying insurance for their home, car, and other valuables – yet if they were to die tomorrow, the only thing that would remain is debt.
Here are some common examples of when life insurance may make sense for you or your family:
- A family with a stay-at-home parent needs coverage when one spouse supports the household while the other stays home to raise children.
- Married couples may need life insurance when there is a major income loss in the event of an untimely death. In this case, it’s often referred to as “breadwinner” life insurance.
- Another instance where a married couple might consider life insurance is when one spouse has a critical illness.
- A single parent needs coverage in the event of an untimely death when their children are financially dependent upon them.
- Parents that support adult children through college or university might want to consider life insurance to pay for future education costs if their child were to pass away unexpectedly.
- A business owner who lives off the profits from their company might want to consider cash value life insurance where death benefits will be paid directly to creditors until the business can continue without its key owner.
Life Insurance, How much do I need?
This depends on your financial needs, but the general rule of thumb is 4x your annual income.
So, if you make $50,000 per year, then it would be wise to get at least $200,000 worth of term life insurance coverage for yourself.
This is just a rough estimate, and many other factors come into play when calculating how much life insurance coverage you will need.
That said, there is no simple answer to this question.
It varies widely depending upon
- the amount of debt and financial obligations,
- income replacement needs, current savings, and
- life circumstances such as paying off a mortgage or children’s college costs.
If you’re unsure about how much protection you need, we recommend that you sit down with an independent Financial Advisor who can help determine what type of coverage will work best if the worst were to happen today.
The good news:
It doesn’t matter whether you are financially comfortable or struggling every month – everyone needs life insurance!
And it’s easy to get started…
How should I use my Life Insurance?
There are many ways in which you can make good use of your life insurance, and just a few of them include:
- You could leave it for your spouse or kids so they would have the money to go on with their lives and care for themselves financially after something happens to you
- You could also invest your premiums into something that will give higher returns than normal savings accounts like mutual funds, property investments, stocks, etc.
If this is what you choose, then get advice from an expert, so you don’t lose too much money because there is definitely some risk involved when investing.
What are the pros and cons of life insurance?
For the pros, you could protect your family financially by providing them with a lump sum of money in case something happens to them without having to worry about paying it back.
For the cons, you are basically throwing away thousands of dollars every year because they will not be able to earn interest for you or increase in value.
Many people don’t even make good use of their term life insurance policies because they are either unaware of how important it is or do not have enough money to invest in an investment plan that would give them higher returns.
What is the best type of life insurance for you?
The best insurance policy for you really depends on your financial needs and how much money you can spend.
However, term life insurance is the cheapest policy type and could be a good choice if you’re looking for coverage that offers protection at an affordable price.
It provides buyers with fixed premiums and death benefits; therefore, it does not accumulate cash value like whole or universal life insurance policies.
On the other hand, permanent life insurance such as universal or whole policies builds up cash value over time which can be borrowed against an emergency.
Which life insurance is the better option, term or cash value? Term Vs Whole?
Ok, by now, you may wonder which type of insurance is the better option, term or cash value?
Well, it really depends on your financial standing and whether you can afford to pay for a more expensive type of policy.
Term policies are cheaper because there are no cash values involved, but if you have the means, then whole or universal life insurance plans are much better long-term investments.
Cash value in these types of policies starts small when you first buy them, but they grow bigger over time, which means that not only will your premiums remain the same (or increase at slower rates) but also the company will never ask for any extra money.
Cash-value life insurance policies typically require higher premiums than term life insurance coverage first (because they build up cash value over time).
However, this is okay because it serves as an investment opportunity to save you money in the future.
Finally, this is just a general analysis of term life insurance vs. cash value life insurance.
For more information about these topics, please do some additional research because there are many factors involved when choosing between term and whole/universal life insurance policies.
By now, it should be clear to you that having enough coverage is crucial to protecting your family financially if anything happens to you while they are still young and might need your help.
Although life insurance might seem like an extra added expense, it makes up for the costs later on if something were to happen to your family, and they can use that money to do whatever they see fit or to start their own business and provide for themselves financially.
So make sure that you know what type of policy would be best suited for your financial situation before making any decisions.
How to Choose a Life Insurance Policy
By now, you should have a good idea of what type of life insurance you need.
If not, there is still more information for you to digest–but the choice is ultimately up to you after all.
Now that you know about policies, how do you go online and make an informed decision?
There are some things that consumers often overlook when they first start looking at different policies.
Let’s take a look at what those things are:
- Types of Insurance Policies – Most consumers tend to see prices first before anything else; however, it pays off to read the details on each policy because this is where companies offer their best deals/discounts–not in their price tags! Different policies come with different benefits, so make sure to read the fine print carefully.
- Company Reputation -It is also a good idea to do some background research on an agent before considering them as a representative for any type of insurance plan.
- Payment Plans – You might be interested in investing through a term policy, but what happens if you cannot afford to pay for it upfront? Having monthly payment plans available gives consumers more options and helps those who wish to protect themselves and spread out payments over time instead of paying everything at once. These plans can also be a good way to invest in your future and ensure that you have enough coverage for your family.
- Financial Strength – You might think this is a given, but it isn’t always the case. Many people pick a company/policy based on its name alone without researching their financial stability or how reliable they are when paying claims. Make sure that any policy you choose from reputable companies that have been around for at least 10 years because within these years, they will have had time to pay out hundreds of successful claims, which can help you trust them even more!
These points do not cover everything, but going through these steps before deciding what life insurance plan is best for your personal situation will definitely help you come to the right conclusion.
The more information you have about a company or policy, the easier it will be for you to make an informed decision and find something right for your family.
Factors That affect life Insurance Rates
Different factors affect insurance rates, and here are a few things to take into consideration before you make a decision:
Income – While income is not the only thing that affects insurance rates, it does play a role in most cases.
Usually, the more income a person has, the easier it will be to secure their financial situation and pay for any life insurance policy they may need.
Geographical Area – The location where you live plays a big role when it comes to your rates because some areas are known as a high crime or high-risk areas, which means insurance companies could charge higher premiums if they feel like there is an issue with the area (higher risk of burglaries, death during violent crimes, etc.).
Health – You may require a medical exam when trying to buy life insurance.
If you have a pre-existing medical condition, it will be harder for you to find affordable rates–and if your health is poor, then the rates could increase even more.
Life insurance policies vary depending on a person’s personal health and record, so having a clean bill of health before applying will help you secure better rates which can save you money in the long run.
So it may be best to have a medical exam before applying for life insurance.
Marital Status – Married people usually have lower life insurance premiums than those who are single because they have someone to care for them should anything happen. Having children also affects your rates as well.
Employment – Having your own business and being self-employed can affect your rates, and so can working as a commissioned sales rep.
Usually, those who work for themselves or have unpredictable incomes will pay more than someone who has a stable job with no commission involved.
Also, those in high-risk jobs will usually have to pay more because of the risks associated with the type of job, such as heavy machinery operators, construction workers, etc.
Credit Rating – The better your credit rating is then, the easier it will be for you to secure life insurance quotes that better fit your budget and needs.
Those with bad ratings might not get approved at all, which means they may need to rely on state insurance which comes at a high price for very little coverage.
Key Take Away
Here are a few factors that have an impact on how your insurance premiums are calculated.
1. Your medical history, current medical issues, and current weight
2. Your career and any risks you face as a result of it
3. Any dangers that come with your hobbies. Sky diving, for example, is a dangerous hobby
4. Whether or not you smoke or consume alcohol
5. Information about yourself, such as your age, gender, and family background
If current health conditions or bad habits like smoking and drinking prevent you from obtaining inexpensive premiums, a no-exam policy is your best alternative.
A no-exam policy is usually more expensive than other types of life insurance, but it may be your best alternative.
If you can’t locate a cheap policy, consider making a few lifestyle modifications to make insurance providers consider you a lower risk.
You could, for example, shed a few pounds, stop smoking, or start exercising.
Alternatively, you might make efforts to manage an existing health issue.
- When choosing a Life Insurance Company, It’s critical to choose a reliable life insurance provider in addition to a policy that matches your demands.
- It’s important to purchase a policy from a reputable insurance company that will be there for decades.
- Your insurance company should give excellent customer service and take the time to address all of your product-related queries.
- You can also choose a service by looking at evaluations and reports produced by consumer organizations.
- Comparing life insurance policies, knowing more about insurance providers, and seeking quotes can help you save money and locate the appropriate policy for you. This procedure takes time, but once you’ve completed it, you’ll have more peace of mind.
There are many ways to save money by taking the time to research your options, so I hope this article has been helpful!
If it has, please share it with friends or family who might find it useful as well.