Why Should I Buy Life Insurance?
That's usually the first question that most people ask. A lot of people assume that their savings, 401(k) plan and investments will be enough to cover expenses if they die. However, that's not necessarily the case. Funerals and other expenses can be more expensive than you think. Some reasons to buy life insurance include:- Covering funeral and related expenses. Even a pretty basic funeral can be pretty expensive, and your family has enough to think about without being concerned about the bill, too. Life insurance should cover the cost.
- Helping your family financially. A lot of families spiral into poverty after the main income provider dies. Life insurance should be enough to cover basic expenses like the mortgage, car and credit card payments, food, and clothing for your family. This will help them stay on their feet while they recoup and plan for the future.
- It doesn't have to be expensive. You can compare insurance rates and coverage levels with several companies to see what works best for you. You also have several options to choose from for your life insurance. You don't have to choose that one million dollar policy if you think that half a million dollars will work fine for you.
FAQ About Life Insurance Policies
If you're looking for a life insurance policy for the first time or are looking to renew or modify an existing one, you probably have plenty of questions. Most savvy consumers do and it makes sense to learn a little about what you're buying with a life insurance policy. Several common questions include:- Are there different kinds of life insurance policies? Two basic types of life insurance include whole life insurance and term life insurance. Whole life insurance is set to remain active until the policyholder passes away or stops paying the annual premiums. It is designed to care for the needs of young children and other dependents in the event of the policyholder's death. Term life insurance is set to last for a specific amount of time, after which it expires unless you choose to renew it. It is an option for a specific need like making sure your mortgage will be paid off if something happens to you.
- Who can I name as the beneficiary of my life insurance policy? It is most common for policyholders to list family members like a spouse or children as the beneficiaries. It can be anyone you choose, though. I've even heard of cases where people listed their pet cats as beneficiaries -- admittedly pretty rare.
- What kind of factors can affect life insurance rates? Factors might include your overall health, marital status, medical expenses and the ages of your children. You can help reduce your insurance rates by maintaining a good driving record, keeping any existing health conditions under control, staying in shape and considering paying your premiums annually.
- What should I consider when choosing life insurance? A good question. A lot of people worry about buying an insurance policy that's too big or too small. Factors to consider include expenses related to a funeral and settling your estate and providing for your family's basic needs after you're gone.
- Can I change my life insurance policy after I get one? Most insurance companies are used to the fact that the needs of their policyholders might change on a frequent basis. In most cases, it's pretty easy to adjust your life insurance policy to fit new circumstances after you've already signed on.
- Will there be a health exam? In some cases like individual life insurance, there will be. In others, such as group life insurance, the provider may just ask you a few questions about your health. Be sure to ask your insurance agent before you sign on.
- What happens if I have an accident, don't die but am disabled and can't work?It's a legitimate concern. Some unforeseen events can disable you and derail your life plans. You might want to consider long-term disability insurance as an addition to your life insurance policy. It also makes sense to have an emergency fund available because, in some cases, there will be a waiting period before the insurance company starts paying the benefits from a disability insurance policy.
- I have a child with a serious health condition. Should I have a life insurance policy in case she dies? Most people don't think of a life insurance policy for children because they're young and you don't expect them to die for a long time. But it might be a good idea if you worry about funeral expenses in case your child dies. It doesn't have to be very expensive. I hear Gerber has pretty good policies designed for children.
- I don't have much of an income. Can I afford life insurance? Be sure to shop around, see what's out there and keep in mind the factors that go into pricing an insurance policy. Even if you can't afford the high-end insurance policy, you might be able to get one that just covers basic funeral expenses. If your employer offers group life insurance, be sure to check that out because group insurance is designed to spread the risk across several people.
Can Your Career Affect Your Life Insurance Premiums?
Does your career involve high-risk activity? Life insurance companies can and often do factor in your career when calculating your premium. One example involves America's early astronauts. In the 1960s, space flight was still brand-new and everybody knew that there was a good chance that the Mercury astronauts could go up in a fireball. Before America's first orbital flight, John Glenn was unable to find an insurance policy that he could afford on a Marine's salary. Out of exasperation, he asked a lawyer representing the Mercury astronauts what could be done. The lawyer agreed to write a check for $500,000 that Glenn's family could cash if he died during the flight. The flight of John Glenn's Friendship 7 was a dramatic success and his family never had to cash that check.
Glenn took the risk because he thought it was a risk worth taking even though he wouldn't have been able to afford the life insurance premiums on his own. Do you think your career is worth the inherit risks? If you love your job, you'll have to balance savings on your insurance premiums against your career because it can be a factor.Types Of Life Insurance Policies
Life insurance companies offer different kinds of policies to cover distinct individual needs. Each type is going to have its unique pros and cons, so be sure to educate yourself about the types of life insurance before you decide.- Term Life Insurance: This type of insurance is designed to last a specific amount of time and fill a specific need, like making sure loans are paid off if something happens to you. They have no cash value and will expire unless you renew when the term is up.
- Whole life insurance: This is designed to build up value over time. Part of money you pay in premiums is usually invested in stocks, bonds and other assets with a cash value and the rest goes to the insurance company. This isn't really considered a good investment option but helps insure that the money is there for your family.
- Mortgage life insurance: This option pays off your mortgage if you die before paying it off. This helps insure that your family won't lose the house.
- Universal Life Insurance: A type of permanent life insurance in which the excess of premium payments is credited to the value of the policy. The cash value can be redirected into separate accounts that operate like mutual funds.
- Life Annuities: A type of insurance in which the policyholder makes regular payments into a fund or makes a large lump-sum payment while still working. Upon retirement, the policyholder receives a sum every year. This type of insurance will usually cease when the policyholder dies unless he names a beneficiary.
- Survivorship life insurance: This form of life insurance only pays out when all of the joint policyholders die. This form of insurance is popular with couples. It is designed to meet expenses like estate taxes or meet the needs of special-needs children.
Tips For Choosing Your Life Insurance
- Get a few quotes. A lot of insurance companies are going to price risk factors differently. By comparing a few quotes, you can be sure you're getting a good deal on your life insurance. On the flip side, keep in mind that the cheapest quote might come from an insurance company that gets poor consumer ratings and doesn't have very good customer service. So be wary of any company that offers rates that's significantly lower than other companies.
- Buy from reputable insurance companies in your state. Which insurance company would you rather trust, Allstate or some guy who claims to sell good life insurance but won't tell you that he's being investigated by the FBI? There are reputable local insurance agents that sell policies from a variety of companies. Be sure to check their credentials and go the other way if something doesn't feel right.
- Find some independent consumer reviews of insurance companies you are considering. It won't help you or your family much if you save money on your insurance only for the insurance company to rip your family off after you die. Most reputable professional review sites are good at listing the good and bad points of any insurance company. It also helps to find reviews from people who have an insurance policy with a particular company so you can see how responsive they are to the needs of policyholders and beneficiaries.
- Take stock of which risk factors you can control. If you smoke, throw away your cigarettes and you might notice a drop in your premiums. Keep your driving record clean and take a refresher defensive-driving course to help eliminate bad habits. Get regular health checkups to catch any medical conditions before they become serious.
- Analyze how much life insurance you need. What amount of insurance will be enough to pay for immediate expenses and take care of your family if something happens to you? By answering that one question, you can stay on track with your insurance options.
- Don't procrastinate. You might be in good health and have been putting off getting life insurance because you don't think it's urgent. But what happens if you get into a fatal car wreck or become the victim of a violent crime? That's the kind of thing that life insurance is for and you should get life insurance as soon as reasonably possible.
- Ask questions if you have them. If something confuses you about the life insurance policy you're considering, be sure to ask your insurance agent or somebody from the company. You might even be able to tell the quality of their customer service by their willingness to answer your questions quickly and in terms you can understand.
- Looking at term life insurance? Consider a longer term on your policy. You might want an insurance policy that will last until you've paid off your mortgage and most mortgages are designed to last about 30 years or so. Most insurance companies can tailor term life policies so that your premiums remain level f0r the duration of the policy. If you want to renew when the term is up, the premiums will usually go up.
- Don't let your insurance agent pressure you into buying a policy with more coverage than you really need. There might be several insurance agents in your area who basically do the same thing, and that's sell insurance policies. You don't have to put up with the same kind of high-pressure sales tactics you might see from a car salesman. If you don't feel comfortable with one agent, you might consider checking into others or visiting several insurance websites on your own to get quotes.
Don't Wait To Get Life Insurance
A lot of people are prompted to get life insurance after a friend or family member dies and they see what it does to their families. You don't have to wait for something to happen to someone else before taking steps to protect your own family. With life insurance, you have plenty of options and savvy insurance shoppers can get the kind of coverage they need to cover expenses. Consider what your family will need to pay off debts and live comfortably if you were to die right now and get the kind of life insurance you need to cover that.
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