Many people are reluctant to address the issue of life insurance because, quite frankly, it is not the most appealing social conversation. However, it is a necessary conversation to have, and one that can give individuals and families peace of mind when action is taken. Discussing and obtaining the right life insurance product for you becomes infinitely less intimidating when the process is demystified by getting answers to some frequently asked life insurance questions.
What is life insurance?
Life insurance is the guarantee that monetary payments will be made to those you designate as beneficiaries, generally family members and loved ones, upon the occasion of your death. The terms of the agreement for the provision of life insurance is formalized in he life insurance policy that issues at the time that life insurance is purchased.
In return for the insurance company’s promise to pay the policy proceeds, you will be required to perform some specific duties which are spelled out in the insurance policy, the most commonly-known of which is the payment of premiums to keep the insurance policy in effect. The type of insurance and benefit amount you choose, along with your health status, will determine the premiums required.
Why types of life insurance are available?
There are two basic types of life insurance – term and permanent. Just as the description implies, “term life insurance” covers a specific period of time, generally with an option for renewal at the end of the term. A term life insurance policy makes a lump sum payment to your beneficiaries at the time of your death that can be used for funeral and other immediate expenses, or to invest in other financial products as replacement for the loss of your income they may have depended upon for support. Term life insurance policies can be more affordable and easier to obtain, which often make them more attractive to young people, single-person households, and families just getting started in life.
We also use a 30 Year Term Life insurance policy in our Mortgage Home Protection Program. We suggest that you acquire an equal or greater 30 yr Term life insurance policy to cover the cost of your mortgage and anything else needed, so that your loved ones can stay in the home if something should happen to one of the bread winners in the family. Keep in mind the cost of a non breadwinner if you still needed to work and maintain the household. This is a great way to supplement your overall life insurance needs.
The second type, permanent life insurance, accrues in cash value over time, and there is no fixed term for a policy as long as premium payments are kept current. The cash value that accrues under a permanent life insurance policy is generally available to you for your use during life. There are also different types of permanent life insurance products including whole life, universal life and variable-universal life, the specifics of which a knowledgeable insurance agent should be able to discuss to help identify the right one for you.
How much life insurance do I need?
While there are no cut-and-dry formulas to determine the exact amount of insurance you need, there are some life conditions and circumstances that should be taken into consideration in making that calculation. It stands to reason that a married person would want to consider the needs of their spouse and dependent children, and the loss of income if they are the primary breadwinner for the family. A single person may be more concerned about making sure there are sufficient proceeds to pay off educational and other debts. In all cases, the costs of final affairs including funeral and burial expenses, should be taken into consideration.
A common mistake
A common mistake when thinking of insurance is I do not need it now because I am covered at work? Too often clients think this and as they get older, change jobs, get laid off, benefits get reduced, and they find themselves without enough insurance or in some case without any at all.. Then they are older, health is not as good, and can not afford as much as they might like or need to take a reduced term. This is why we suggest that you should always have some insurance not tied to your employment.