Life Insurance is a financial tool to help people like you to take care of your loved ones after you’re gone. Typically, life insurance is most important for those who have financial dependents. This would include those with a spouse, children or dependent adult parents or siblings. Essentially, if another person would be financially insecure as a result of your death, then you should definitely be thinking about getting life insurance.
1. Why Doesn’t Everyone Have Life Insurance?
Most people need life insurance, but have some confusion about the kinds of life insurance available, the benefits that different types of life insurance offer, and the cost of life insurance. In a recent poll, 50 million households said that they needed more life insurance. Yet, they don’t buy it because many think that life insurance costs up to three times more than it really does!
2. What Benefits Can Life Insurance Offer?
Depending on the type of life insurance purchased, benefits may include:
- Income replacement
- Fund for payment of estate tax
- Protection against off of primary residence
- Funding for college education
- Easy short-term loan accessibility
- Funds for heirs to inherit
- And more
3. How Does Life Insurance Work?
In a nutshell, life insurance is a plan whereby the insured pays into the life insurance policy for a period of time. Upon that person’s demise, and upon meeting the terms of the policy, the insurance company pays out the pre-determined total of the policy to the person’s beneficiary. Now, since there are different kinds of policies, the actual way the policy works will depend on the individual circumstances.
4. How Much Life Insurance Should a Person Have?
Everyone is different, so the amount of life insurance they should have will vary. There are standard calculators that can help you determine how much life insurance to get based on your income, why you are buying the life insurance, and more. A better way is to determine your needs and obligations in the present and in the future. Then you can subtract existing liquid assets that would also contribute to your beneficiary’s financial situation. This will enable you to get a clearer picture of how much life insurance you should carry.
5. What Are the Two Basic Life Insurance Options?
There are a whole host of life insurance policies with different terms and benefits. But all of them can be easily categorized into two different kinds; term life insurance and permanent life insurance. Term life insurance is set for a specific term, such as ten, 15 or 20 years. When that term expires, so does the policy. Permanent life insurance never expires unless the person stops making payments into it. The other main difference between these two basic types are that term life insurance is usually less expensive.
6. How Does Term Life Insurance Work?
A person would determine for how many years they wish to carry the life insurance policy. The insurance company determines the premium, or monthly payment for that policy. Once the set years have passed, the policy expires. If the person wants to renew for another term, they have to reapply and will be given a new premium amount.
7. How Does Whole Life Insurance Work?
Whole life insurance is one of four types of permanent life insurance. Whole life insurance doesn’t expire unless the policyholder cancels it or discontinues making payments. Fixed-rate premiums are due monthly. These premiums “feed” into the policy, making the value increase as time goes by. This creates a cash value, which the policyholder can keep in the policy or use for purposes such as a short-term loan or to pay for college tuition, etc.
8. What is Universal Life Insurance?
Universal life insurance not only builds in cash value; it also offers flexible premiums and flexible benefits. The policyholder determines how much and how often they contribute to the policy.
9. What is Variable Life Insurance?
Variable life insurance is a form of universal life insurance. It offers everything that a universal policy offers, with more control over how the premiums are invested. Therefore, the policyholder can potentially make a variable life insurance policy grow larger in cash value than a universal life policy, depending upon the success of the investment decisions.
No matter what kind of life insurance you get, the truth is that you should start thinking seriously about getting life insurance as soon as possible. Contact us today for helpful guidance about which kind of policy—and how much—you should have.