An Overview of Life Insurance
First comes marriage. Then comes mortgage. Then comes baby, and a life insurance plan. That’s how it seems to go for most people. But, there are many other times in your life when you should consider getting life insurance. Whether you are married, single, or retired, it is important to understand life insurance and how it fits into your overall financial plan.
How life insurance works
You purchase a life insurance policy because you want to make sure your family (or your selected beneficiary) won’t suffer financially as a result of your death. You agree to pay a premium, usually once a month or once a year, for the length of your coverage. The length of a policy’s coverage is also called the term.
The life insurance company agrees to pay a certain amount to the beneficiary, the person(s) (or entities) you choose to receive the death benefit. But the insurance company only pays if you die within the policy’s term. And the length of your policy’s term depends on the type of life insurance policy you choose.
The two main types of life insurance are term life insurance and permanent life insurance. Both offer a way to provide financially for your family (or other selected beneficiary) after your death. But they differ in how long they last and whether the policy has cash value.
When to buy life insurance
Most people buy life insurance during their income-earning years to protect their spouse and other dependents in the event of their death. The loved ones who rely on your income can use the death benefit to replace your lost income and maintain a similar lifestyle after your death.
Some immediate expenses that a death benefit could help with include:
- Funeral expenses
- Mortgage or other debt
- College tuition
- Daily living expenses
- Taxes on inheritance
Not just for “married with children” folks
Many people wait until they have dependents to get life insurance. But, in some circumstances, it can be a good idea for a young, single person, with or without dependents, to buy life insurance.
Reasons a person might get life insurance include:
- Provide financial support for an aging parent
- Pay off significant debt so it doesn’t pass on to family members
- Leave money to an important person or a meaningful charity
When you are younger and healthier, life insurance usually costs less. And, you can always add to the policy later if you would like more financial protection for dependents.
Your health matters
Life insurance companies may require you to undergo a medical exam before you purchase life insurance. This process is called medical underwriting and it helps the insurance company evaluate their risk for insuring your life. The exam is usually done by a paramedical provider who is paid by the insurance company to conduct the exam.
The medical exam typically includes:
- Review of your health history
- A brief physical exam
- Testing (often urine, blood, and sometimes EKGs)
In general, the healthier you are at the time of the medical exam, the lower your premium will be. Others things life insurance companies use to set a premium or deny coverage are your age, sex, and pre-existing conditions.
Some steps to take before choosing a policy
Consider these questions:
- How much money will your beneficiary need if you die tomorrow?
- What can you afford to pay for your premium?
- Which type of policy is best for you, term life or permanent life?
- If you select a term life insurance policy, what length of term should you choose?
- If you select a permanent life insurance policy, which type offers the level of investment and flexibility that you are comfortable with?
- Which life insurance company is offering the right policy for me?
Post a Comment