15 Facts You Never Knew About Life Insurance

  1. It’s part of a sound financial plan. 

 

Putting money aside for retirement and building a nest egg is crucial for the financial security of you and your family. After all, if you suddenly were unable to support your family, what would they do? 

 

If anyone financially relies on you, then life insurance should be a requirement. In fact, almost two-thirds of people say they’ve bought life insurance to replace lost wages or income in the event of their death. Specifically, with a life insurance policy, your family will be able to cover essentials like food, clothing, housing, debts, or end-of-life expenses. And, it can also be used to help save for your child’s education. 

 

  1. Insurance is a product, not an investment. 

 

Some brokers will try to convince you to purchase whole life insurance by stressing that it’s a valuable investment. How so? Because its cash value grows over time. In reality, if you’re actually concerned about growing your wealth, you should invest in the market or other investments like real estate.

“Insurance is a product, not an investment. If no one is worse off financially should you pass away unexpectedly, you probably don’t need life insurance,” said Patrick McDowell, a certified financial planner with Arbor Wealth Management. According to him, the best-case scenario would be to pay monthly premiums for the length of the policy and not get anything back because you didn’t die.

  1. There are different kinds of life insurance. 

Just like your favorite burrito, ice cream, or annuity, life insurance comes in a variety of flavors. Generally, there are two types of life insurance: term life and permanent life, which includes whole life and universal life. Term life insurance provides coverage for a set period of time vs. permanent life insurance. 

But, let’s take a quick look at the various types of life insurance you may want to consider;

  • An insurance policy covering you for a set number of years is known as a term life policy. Your beneficiaries receive the death benefit if you die before the term ends.
  • Whole life insurance provides lifelong coverage and does not expire. It also has a cash value, which can be used for tax-deferred savings for your beneficiaries.
  • With universal life insurance, the policyholder can adjust their premiums and death benefits without having to buy a new policy. In this scenario, the policyholder may opt to pay the premium out of pocket instead of using the cash value of insurance.
  • An insurance policy with variable value does not have a savings account linked to it. You actually invest the money in stocks, which can increase or decrease as the market changes.
  • A variable universal life insurance policy is a hybrid between variable and universal life. In addition to changing the premium and death benefit amounts, policyholders can also invest their cash value in the stock market. 
  • You can forego a medical exam with simplified issue life insurance, also known as a no-exam policy. There is still a questionnaire regarding preexisting illness and conditions, however.
  • With guaranteed issue life insurance, you are assured of coverage. In order to get approved for coverage, you don’t have to undergo a medical exam. 
  • The purpose of final expense insurance is to cover expenses associated with the end of life. Such a policy can, for instance, compensate for funeral costs or medical costs.
  • A group life insurance policy is generally provided by your employer. Although group policies often do offer adequate coverage, it’s still a good idea to consider purchasing your own policy.
  1. You probably need more coverage than you think.

About half of all life insurance policyholders do not know how much coverage they have or feel they need more. What is a sufficient amount then? Life insurance experts often recommend purchasing 7-10 times your annual income. Of course, the appropriate amount varies from person to person. 

  1. Don’t expect coverage through work. 

In 2017, only 48 percent of employers offered health insurance to their employees. When compared to 2006, that’s a 23 percent drop. Considering that employer-sponsored insurance has been declining steadily since 2006, the outlook isn’t looking bright. 

  1. Life insurance is surprisingly affordable for most people.

Adding more features to life insurance will increase its cost. And, if you smoke or have health problems, the cost will also escalate. But according to the Insurance Barometer Study conducted by Life Happens and LIMRA, the average person believes life insurance is three times as expensive as it really is. 

 

On average, a healthy nonsmoking 30-year-old man can get a $250,000 20-year level term insurance policy for merely $16 a month.

 

  1. Life insurance does more than pay out a death benefit. 

 

“There are a lot of options – much more than people realize,” says Cliff Wilson, chair of the board of directors for Life Happens, a nonprofit that educates the public on insurance matters. As an example, insuring a service member’s dependents after retirement is one of the perks offered by USAA’s Military Future Insurability Rider. However, many of the life insurance benefits can be obtained by anyone.

 

Moreover, a life insurance policy can also pay for long-term care expenses, provide benefits if terminally ill, and be an income source if disabled. Life insurance is also a safeguard against sagging stock markets, can be used to insure the life of a child, and minimize your taxes in retirement. 

 

And, if you outlive your life insurance policy,  your life insurance company could return all your premiums. 

 

  1. Life insurance pays out quickly.   

 

Regardless of how long before the payout takes place, life insurance usually pays out within a month. Why so fast? Because estate claims are not entangled with insurance payouts.

 

  1. Generally, life insurance proceeds are tax-free. 

 

A primary benefit of life insurance is that the payouts are made tax-free to your beneficiaries. Just be aware that you will have to answer to the taxman if you make a withdraw from a cash value policy. This is also true if you sell or surrender the policy, as well as took a loan against a cash value policy.  

 

  1. Your insurance might not payout if you die from certain causes.

 

Insurers don’t pay out for suicide under a suicide clause, which usually lasts about two years. Also, depending on the policy, some policies exclude coverage for deaths resulting from felonies. And, if the policyholder was murdered by its beneficiary, benefits aren’t usually paid. This is also called the “slayer rule.”

  1. It’s never been faster to purchase life insurance. 

In the past, getting approved for life insurance took weeks — if not months. Thanks to today’s technology, buying insurance can be done during your lunch break. For example, with Due, you can secure life insurance quickly and securely online. 

Nearly half of all shoppers over 18 years old search for insurance information or insurance quotes online. A total of 29% of shoppers said they would conduct their insurance research and even purchase a policy online. Compared to 2016, this represents an increase of 7%. Online information is very important to Baby Boomers. Among Baby Boomers, 61% found online information helpful.

Moreover, the percentage of shoppers who prefer to purchase life insurance over the internet increased from 17 to 29 percent by 2020.

  1. You can change your life insurance. 

 

It’s possible that your parents bought life insurance for you when you were born. Your term policy may have been purchased when you became a homeowner. But, now that you have a larger family, you’re worried about paying for their college educations. Or, maybe the cost of living has changed and you want to change your coverage. 

 

Whatever the scenario, it’s totally possible to change your life insurance policy. 

 

  1. It’s important to purchase life insurance when you’re young and healthy.

 

Costs of life insurance rise as you age. As such, this is why “right now” is almost always the best time to purchase life insurance. Outstanding health issues, like chronic illness, can also make coverage more expensive or disqualify you from certain plans. 

 

Young adults who are healthy and need life insurance coverage may want to look into their options sooner rather than later. 

 

  1. There are life insurance options for seniors or if you have health problems. 

 

Life insurance, whether term or permanent, isn’t always the best choice, depending on your age and health. But that doesn’t mean you can’t get coverage. 

 

You can still secure financial peace of mind if you’re worried that an insurance company will reject you because of your age or health. Depending on your health issues, or if you’ve been denied life insurance coverage by other companies, there are insurance companies that will provide a variety of no examination plans.  

 

  1. Not everyone needs life insurance. 

 

“Not everyone needs life insurance,” states Gina Roberts-Grey for Investopedia. “Those who’ve accumulated enough wealth and assets to care for their own and their loved one’s needs independently in the event of their death can forgo paying for life insurance, especially if it’s a term policy.” 

 

“On the other hand, there are people whom experts say should never be without life insurance; these groups of people are listed below,” she adds. These include couples, parents, homeowners, and business owners who want to pass on a legacy. 

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More