Protecting your dependents’ livelihood with life insurance is always a wise decision. But, at the same time, buying a life insurance policy can seem overwhelming. And, that’s understandable with the number of coverage options available. As a result, you might delay purchasing a policy.
In the long run, however, delaying such an important discussion can be costly and detrimental — primarily if a catastrophe occurs.
If you decide to purchase a home, property, or auto insurance — you already know it’s essential to educate yourself about the purchase. However, it is just as important to educate yourself about life insurance basics and talk to an insurance professional regarding your unique financial situation.
When you study out different life insurance solutions and speak with a professional, it helps you determine whether a policy will suit your unique circumstances. To help you get the process underway, here are fifteen questions you’ll find beneficial.
Do I need life insurance if I already get it through work?
Most employers do offer group life insurance plans with no medical exams. Therefore, there are often affordable and easy to enroll in. However, group policies may not provide enough coverage to cover your family’s needs as they may only pay one or two years of salary.
Furthermore, you might not be able to take your life insurance with you when you change jobs. So, it makes sense to have a personal policy supplement your employer-provided policy when we begin to age, as getting life insurance becomes more complex and costly.
What kind of life insurance policy should I get?
It’s essential to understand what basic types of life insurance coverage are available. The two main types of life insurance available are term insurance and permanent insurance.
A term insurance policy provides coverage for a specified number of years and pays a death benefit — as long as all other conditions are met. In general, term insurance policies can last between one and 30 years and are typically bought to provide financial support for a child or to cover mortgage payments.
A term policy’s death benefit can either be constant throughout the policy period or decrease over time. Again, it depends on the type of policy you purchased.
As opposed to this, permanent life insurance provides a death benefit to the insured regardless of life expectancy. A permanent insurance plan is more complex than a term policy, and there are several types, including whole, universal, and variable universal.
With traditional policies, there’s an agreed-upon premium and death benefit at purchase. On the other hand, variable and universal policies will fluctuate depending on the performance of the market.
How much life insurance do I need?
The amount of life insurance you buy depends on the amount of money needed to pay off your debts, and the amount of money your dependents will need to continue their lives in your absence. An insurance agent can help you calculate your exact life insurance needs, but it’s good to ask questions about how they arrive at the figure and what the number is based upon.
Make sure your insurance company takes your financial status and future needs for your family into account before you commit to buying insurance.
How much life insurance should I consider?
The benefit size should be large enough to take care of the needs of dependent family members. The number is sometimes estimated by subtracting assets from long-term obligations like a mortgage or any other debt. You can use the amount leftover to determine how much death benefit you might need.
Starting with a number may be logical — for example, death benefits equal to 10 times current income. However, not everyone may need such a significant level of protection. With that in mind, you need to assess what your needs are and what your family needs.
It wouldn’t hurt to speak with your agent about how to navigate the consideration process. Together, you can go over how much is left on the mortgage, how much you pay in monthly bills, and how much your surviving spouse might be eligible for to determine how much life insurance to purchase.
How much does a life insurance policy cost?
Many factors determine the cost of a life insurance policy. To determine the type of life insurance you need, your agent will need to know your age, gender, lifestyle, and medical history, including whether a physical examination is necessary.
These factors determine your risk level. The risk level of your policy is affected by a variety of factors, ranging from your occupation to your hobbies to your health habits. If your risk level is higher, you will have to pay more for life insurance.
Choosing the right policy means knowing how much coverage you need and knowing how much you can comfortably afford. On average, a life insurance policy can cost anywhere from $40 to $55 per month. But your actual rate will depend on your risks and the type of policy you choose. And, as a refresher, permanent insurance policies generally cost more than term insurance policies.
Will my monthly premium ever go up?
For those with restricted budgets or incomes, it may be necessary to manage their monthly expenses and determine whether the premiums in their policy are “fixed” or “level,” i.e., they won’t increase over time.
Generally, life insurance policies with level terms provide coverage for a set period of time, like 10 or 20 years. During that time, you’re guaranteed a stable premium rate. So as long as you keep up with your premium payments, permanent life insurance policies offer you coverage for your whole life at a fixed premium.
What happens if I miss a payment?
According to the Insurance Information Institute (III), if you miss a premium payment on a term life policy, your coverage may lapse, according to the Insurance Information Institute (III).
If you can’t afford a premium on a permanent policy, the III suggests that there may be other options. For example, you may be able to pay your premium with the cash value of your policy. You may also be able to reduce or stop your premium payments temporarily.
However, in order for these options to be available, a sufficient cash value must accumulate on the policy that can cover the costs of the payment. If you cannot obtain these options and pay for the premium, your coverage may expire.
There is typically a grace period for insurance policies to avoid termination if you fail to make a payment. State regulations determine this grace period, which may also vary from insurer to insurer. If you don’t know when the premium is due, you should check your policy or ask your agent.
Who should be my policy’s beneficiary?
As part of a life insurance policy, you’ll pick a beneficiary who will inherit the benefits in the event of your death. Beneficiaries can include spouses, siblings, and children. You can also designate an entity to be your beneficiaries, such as your favorite charity or alma mater.
While this is obviously an emotional decision, choosing the right beneficiary is arguably the most important part of having life insurance. After all, you purchased a policy to ensure that those who depend on you will be financially protected.
How are death benefits paid?
You should choose a death benefit structure that adheres to your dependant’s needs and goals. There are generally two options: lump-sum payouts or monthly payments.
With a lump sum payout, your beneficiary will receive the entire benefit at once. On the other hand — monthly, or annual payments are recurring installments until the benefit is depleted. It is even possible to arrange your life insurance so that your spouse will receive a death benefit that goes directly into their IRA.
Does the plan require a physical exam?
Physical examinations are typically required before a plan kicks in. An approved doctor will have to perform the exam at your expense in many cases.
Does the policy provide living benefits?
Life insurance is often misunderstood only to provide death benefits. However, there are many life insurance policies with living benefits, such as the ability to borrow against the policy’s cash value.
Living benefits vary between companies and may be provided to an insured individual. Among some of the common living benefits are:
- Early pay. Benefits for terminally ill individuals and medical costs are included in this coverage. The policy and the company determine the percentage of the benefit.
- Long-term care. In the event that an insured cannot provide their own basic care and needs assisted living, long-term care coverage may provide them with the resources to cover the cost of the care.
- Short-term care. If an insured is temporarily impaired or injured, this benefit may assist with covering short-term medical expenses.
Depending on the life insurance policy, some of these benefits will be included, while others can be added for an additional fee. Again, you may want to talk to a professional about the availability of such living benefit options.
What is “cash value,” and do all life insurance policies have it?
Term life insurance does not build cash value over time, but permanent life insurance does. With each monthly premium payment, the life insurance company sets aside a small amount of money. With time, the cash value of your policy will increase. Policyholders can access the cash value of their policies whenever they choose.
Previously accumulated cash value less any unpaid premiums and any loans against the policy is the “available cash value.”
The cash value can be used for many purposes, including cashing out the policy and borrowing against it. Occasionally, a policy owner can use the available cash value to pay the premiums if they can no longer afford them.
The original value of your policy is maintained if you borrow against the policy’s cash value (the insurance company sets the interest rate). Then you pay it back (with interest). Your policy value will be reduced if you fail to repay the loan.
For example, if you borrow $1,000 against a $100,000 policy and pay back the $1,000 (with interest), your policy would remain $100,000. However, upon non-repayment of the loan, the policy will only be worth $99,000 minus interest accumulated.
What happens if I don’t die during the policy term?
The death benefit won’t be paid if you don’t pass away during the term. However, as your policy gets closer to expiration, you may be able to keep it. A financial professional can help make sure your policy continues to meet your needs by reviewing it regularly. In addition, many term policies come with the option to convert your term policy into a permanent policy when your term policy is ending.
How can I get life insurance?
A life insurance policy can be purchased in a few different ways:
- Directly from the insurer. Often, you can purchase a policy directly from the insurer if you have already done your research and know precisely what you want.
- Through an agent or broker. Not sure which policy to choose? Let your life insurance agent or broker assist you. An agent or broker can simplify the process of applying for coverage, explain your options and help you find the right policy for your budget.
- Compare policies online. Online quotes are available from most insurance providers. By comparing prices and coverage, it is easy to find the best coverage for the best price. Moreover, you can purchase a life insurance policy online through companies like Due.
Can I increase or decrease the benefit amount after the plan goes into effect?
As you age, your life insurance needs may change. As well as the terms and conditions of your life insurance policy, it may need to be amended. For instance, by the end of the policy term, the concept of term life insurance is that you will no longer need an insurance policy. However, most term policies allow you to convert to a permanent policy at the end of the term if it is still necessary at that time. With advancing age, however, conversion premiums may increase.
The type of policy you choose for yourself should consider any future life changes and financial needs you may have, even if you do not have a mortgage or children at the time of purchase.
To save money and prevent future troubles, it’s essential to select the right policy as soon as possible while you’re still young and healthy.