How Life Insurance Works

Life insurance offers financial protection for your loved ones in the event of your death. By paying your premiums, this ensures that the insurance company sets aside a designated amount of money for your beneficiaries. This can be used to cover various expenses such as funeral costs, outstanding debts, mortgage payments, or even providing income for your family's future needs.

Tips on Finding the Best Life Insurance Plan For You

It can be overwhelming researching all your choices. Here are a few key points that can help make the process easier.

Quotes Aren’t Always What They Seem

Did you know that the cost of maintaining a cash value life insurance policy might cost you way more than the initial quote provided?

In some states, insurance companies are required to give quotes for low premiums for certain products by law. However, they can still charge more without ever mentioning that you may need too pay a larger premium to prevent the termination of your coverage.

Always Compare Financial Strength Ratings

A strong rating is a good indicator that the company will remain financially stable for years to come. This also means that your insurers are less likely to send internal policy costs and premiums skyrocketing during any economic downturns.

Don’t Be Fooled by Low Premiums

Low premium quotes sometimes have hidden internal costs which include expenses, fees, along with the full cost of the plan. These can hurt the growth of your cash value over time. Asking your insurer for expense pages or policy accounting pages can go a long way. This should save you from any surprises when it comes to your policy.

Determine if You Want Additional Coverage for Your Life Insurance

You can enhance your life insurance policy by using riders, which are offered by most insurance companies. These riders can provide additional benefits such as accelerated death benefits, long-term care, term life conversion and waiver of premium if you become disabled. However, adding a rider can lead to a higher cost. So, if you want to explore this option, speak with your life insurance agent to learn more about your choices.

Understanding the Two Main Types of Life Insurance

Term Life Insurance

Term life insurance allows you to select the duration of your coverage, ranging from 10 to 30 years. If you pass away within this chosen term, your designated recipient will receive a death benefit. However, if you survive the term and opt not to renew the policy (at a greater expense), there won’t be a death benefit.

This would be an ideal choice for anyone looking to address a particular financial worry like replacing their income while actively employed.

Permanent Life Insurance

Permanent life insurance is ideal for those who wish to receive a death benefit regardless of when they pass away. These particular life insurance policies can also offer a cash value component that can accumulate money in a tax-deferred manner. Although it costs more than term life, permanent life insurance makes a great choice for anyone looking to support financial dependents, funding trusts for their heirs, or building cash value to boost retirement savings.

A Further Breakdown of Permanent Life Insurance

Whole life insurance

Whole life insurance offers a sense of certainty as the premiums, rate of cash value accumulation, and death benefit are established upfront and guaranteed.

Universal life insurance

Universal life insurance offers greater flexibility by allowing you to modify your premium payments and death benefits according to specific parameters. The growth of cash value depends on the performance of the insurer and underlying assets invested in the policy. Different types of universal life insurance include fixed-rate universal, guaranteed universal, indexed universal, and variable universal.

Variable life insurance

With variable life insurance, you get to enjoy the advantages of flexibility not usually seen in whole life insurance, with a safeguard in place to guarantee that your death benefit won't dip below a set amount. This unique level of adaptability allows you to make investment choices that are critical to the success of your policy, making it the ideal option if you want a hands-on role in your life insurance coverage. Unlike a variable universal policy, variable life insurance ensures that your death benefit stays above a specified dollar value.

Variable life insurance won't allow you to alter your premiums, which gives it a certain degree of reliability. Additionally, just like other types of permanent life insurance, variable life policies also provide cash value, which you can access during your lifetime.

You still should ensure that your policy maintains a minimum level of cash value, or your policy could become void.

No-Exam Life Insurance

While these policies don’t require an exam, you may still be expected to answer a few health-related questions to qualify.

Other Types of Life Insurance You Should Know About

Burial insurance

Burial insurance, also known as final expense insurance, provides a small payout of around $10,000, which is meant to cover final expenses. These policies are typically whole life insurance policies and are expensive considering the amount of coverage they offer.

Survivorship life insurance

A survivorship life insurance policy is a type of insurance that covers both a husband and wife, also known as second-to-die life insurance. The benefit is only given after both individuals have passed away.

Mortgage life insurance

In the event of the policyholder's death, a mortgage life insurance policy settles the mortgage and sends the payment directly to the lender.

Life Insurance Costs and What to Expect

Term life insurance is less expensive than permanent life insurance for the same level of protection. The cost of life insurance depends on several factors such as the insurance provider, your age, health, gender, coverage type, coverage duration, coverage amount, and other related variables.

What’s Covered?

Life insurance provides coverage for various causes of death, including illnesses, accidents, and the natural process of aging. This encompassing protection includes deaths caused by diseases, falls, car accidents, and Covid. It’s important to note that even accidental drug overdoses fall under the scope of life insurance coverage.

On the other hand, there exists a specific type of life insurance called accidental death and dismemberment insurance, which offers a more restricted form of coverage. This particular insurance solely focuses on deaths that are accidental in nature, such as those resulting from unforeseen falls or car crashes. However, it does not provide protection for deaths caused by illnesses, diseases, or old age.

How Life Insurance Can Assist You and Your Family

• It can fund your funeral arrangements.
• You can use it to create a trust and finance it with your life insurance to continue financially supporting your family even after you pass away.
• It can help replace your income so your family isn’t left with a financial burden in the event of your death.
• The money from your policy can be used towards paying your mortgage or other debts, so your family isn’t left with them.
• During retirement, a cash value policy can be used to generate additional income.
• It also can guarantee that your kids have enough money to pay for a college education in the event of your death.