Life Insurance 101

Life Insurance 101

There are many things that can cause you to think about the end of life, such as the recent passing or serious illness of a friend or family member, a milestone birthday or other events. The unfortunate reality is that everyone will meet the same fate, and you cannot anticipate when this eventual outcome will happen.

More than that, when you do pass away, you may leave behind loved ones who are currently dependent on you for their financial well-being. You may also leave behind debts, funeral costs and more for your loved ones to contend with. It is important to plan for the future so that you do not create financial stress on your loved ones when they are mourning your loss.

Buying life insurance is one of the best steps that you can take to prepare for the end of life. The death benefits are often used to supplement lost income that your family otherwise would have received from you, to pay off outstanding debts and to pay for funeral costs. Some people will also purchase coverage to provide a legacy to loved ones and for other financial benefits. Before you buy a life insurance policy, it is important for you to learn more about the options and how coverage works.

What Are the Different Types of Life Insurance Plans?

There are two main types of life insurance that you can purchase; they are term and permanent policies. With a term policy, you often can choose between a 15, 20 and 30-year term, but there is some variation to this based on which insurance company you purchase your plan from. During the term period, the coverage will remain active as long as you pay your premium as agreed.

At the end of the term, the coverage will simply cease. Often, this type of coverage is used when an individual is concerned about the financial support they need to provide to a spouse and dependents. When you are retired, and have amassed assets in retirement accounts or are receiving Social Security and pensions, it may be less important for you to use life insurance for death benefits.

A permanent life insurance policy, on the other hand, will remain in place throughout your life as long as the premium is paid. This type of policy is usually more expensive to purchase, but you never have to worry about your loved ones being without death benefits. If you happen to pass away later in life when you are financially secure, your death benefits may be used as an inheritance for loved ones rather than as a source of income.

A permanent policy also often accrues cash value, and because of this, it can be considered an asset. This cash value will grow over time with each premium payment you make, and it generally also earns a modest amount of interest. You may be able to borrow these funds as needed, or you can cash out the policy to obtain the cash value.

How Can You Receive a Life Insurance Quote?

If you have never received a life insurance quote, you may not know what to expect. Getting a quote is rather easy to do. Some life insurance companies offer an online quote feature, and you may be able to get one within a few minutes. Others require you to call and speak with a representative to obtain a quote, and you may have to answer questions related to your age, gender, health status, age when close relatives passed away, tobacco and alcohol use and more.

It is important to keep in mind that most life insurance companies will also need to review the results of a physical exam before issuing a firm quote and finalizing the policy. This sounds invasive and complicated, but it often is easier than it sounds. A representative can usually travel to your work or home as desired at a time that is convenient for you, and the process normally only takes a few minutes to complete. The representative may take a blood and urine sample from you, check your height and weight and take your blood pressure. A few additional questions about your health and lifestyle may be asked. You will receive the results from the physical within a few days to a few weeks. These results will be used to finalize your premium amount.

What Should You Look for in a Life Insurance Plan?

Buying life insurance can seem overwhelming if you have never completed this process, and you may initially be confused by the options available. As a first step in the process, it is important to determine your coverage needs. This is one of the first things that will be asked when you request an online or phone quote from an insurance company.

Death benefits can be used in various ways. For example, some will use death benefits to pay off outstanding debts. This lowers the family’s monthly expenses, and they may be lowered enough so that one person’s income can support the family. Another way death benefits can be used is for investment. For example, the full amount of death benefits can be invested in stocks that produce regular dividends. Your lost wages may be supplemented by the dividends. In addition, the initial nest egg may remain in place and can be used as a source of retirement funds for your spouse later in life.

After you have determined your coverage needs, it is important to find a reputable company to work with. This company should have great rates on policies as well as an established reputation. It is wise to read online reviews to ensure that the company will pay out as agreed without hassle or concern. Ideally, the death benefits will be paid quickly as the family may need them to pay for funeral expenses.

How Can You Determine Which Type of Policy Is Best for You?

Because the two main policy types are permanent and term, it is important to make the determination about which one is right for you before you request quotes. More than that, you should determine which term length you need if you choose to invest in a term policy. Often, you may need to adjust your needs based on your current budget and ability to pay the premium. Finding a balance between an affordable premium and your budget can be difficult at times.

It is wise to develop a solid financial plan regarding savings and investments to determine if you have a short or long-term need for coverage. Consider the point in time when your assets may provide enough support for loved ones or when dependents may no longer need your financial support. By focusing on these points, you may be able to better determine which type of policy to purchase.

It can be difficult to prepare for the end of life. Few people want to think about their passing and the hardship this event may create for loved ones. However, by focusing on the inevitable future and buying the right life insurance policy, you can rest assured that your loved ones will be well provided for when you are no longer able to do so yourself.