LIFE INSURANCE
How does life insurance work ?
You buy homeowners insurance to protect your home and auto insurance to protect your car, but What about insurance to protect your family’s financial security?
While many people think they need life insurance, their lack of knowledge causes them to overestimate the cost. In fact, according to the 2019 Insurance Barometer Report from industry groups LIMRA and Life Happens, perceptions of affordability and value often deter people from buying life insurance.
To help you determine if a life insurance policy makes sense for your financial needs, here we give you the option to compare between the different insurance companies with the advice of our team of experts so that you can make an informed decision about the purchase of a policy.
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If a loved one depends on your income, or you want to ensure they are taken care of financially in case you pass away, life insurance is worth considering.
To help you determine if a life insurance policy makes sense for your financial needs, here’s a breakdown of everything you need to know about life insurance so you can make an educated decision about purchasing a policy.
What is Life Insurance?
Life insurance is a contract between you and an insurance company. Essentially, in exchange for your premium payments, the insurance company will pay a lump sum known as a death benefit to your beneficiaries after your death.
Your beneficiaries can use the money for whatever purpose they choose. Often times this includes paying daily bills, paying a mortgage, or sending a child to college. Having the life insurance safety net can ensure that your family can stay in your home and pay for the things you planned.
There are two main types of life insurance: term and permanent life. Permanent life insurance, such as whole life insurance or universal life insurance, can provide coverage for life, while term life insurance provides protection for a specified period.
How to Choose a Life Insurance Policy Type
With all the life insurance options available, it can seem difficult to choose the right one.
Start by deciding between term life insurance and permanent life insurance.
Consider a term life insurance policy if you need life insurance for a specific period of time. For example, if you want insurance to cover your working years as possible “income replacement” if you are no longer present.
Term life insurance is also a good option if your budget is limited. Since term life insurance provides protection for a specific period of time and is not a cash value life insurance policy, the rates will be lower than permanent life insurance.
As you enter the different stages of life, your life insurance needs may change. Many term life insurance policies can be converted to a permanent policy. The options will depend on your policy and insurer. Term life conversion allows you to switch to a permanent policy without having to reapply or take a life insurance medical exam.
On the other hand, a permanent life insurance policy will last for life. If creating cash value is important to you, look into permanent life insurance options. But if you are buying a permanent policy just to capitalize on the accumulation of cash value, depending on the policy, you had better put your money in a savings or investment vehicle so that you are not paying for life insurance and fees within of a permanent policy.
And the cash value is not usually intended for beneficiaries. Upon death, any cash value is generally reverted to the life insurance company. Your beneficiaries get the policy’s death benefit, not the death benefit plus cash value. However, some types of policies will offer the death benefit plus cash value, but at a higher price.
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