Life Insurance
Understanding Life Insurance: What You Need to Know
No wonder then that the term ‘life insurance’ seems counter-intuitive and generates certain amount of anxiety. These days everyone seems to be aware that they need it but very few can comprehend the intricacies of it in USA. Well, what is life insurance then? Why is it important? Who should consider it? Which one is for you? Here are some questions which we will further discuss to in order to learn more about life insurance in an entertaining and informative manner.
What is Life Insurance?
In simple terms, life insurance is a signed agreement between you and insurance firm whereby the insurance firm agrees. You make the premiums normally and in exchange the company ensures that at your death, your beneficiaries receive the agreed amount of money. This financial protection can then also provide for expenses such as funeral costs, mortgages, utilities or any other expenses that you have, to make sure your family will not be struggling financially from your loss.
A Personal Anecdote
Let me tell such personal experience. Some years back my friend Sarah experienced the tragedy of the death of her father. He was the backbone of their family and, therefore, when he passed on unexpectedly, the family was in disarray. Thank God he had subscribed to a life insurance policy some time back. Because of that, funeral costs and difficulties to pay the bills were not an issue for Sarah and her mother. All this made me realize how important the life insurance is within our lives.
Why is Life Insurance Important?
Indeed, insurance, in particular life insurance, is one of the most crucial services that might be required at some point in life. Here are some compelling reasons to consider:
Financial Security for Loved Ones
First of all, it is necessary to mention that the general aim of insurance benefits is to give people financial security. In the event that you die before your expected time, you are able to provide for your family through offering them life insurance in order that they may continue living the same standard of living they enjoyed whilst you were alive.
Coverage for Debts and Expenses
As for the insurances, it is also important to mention that life insurance can also provide for any remaining balance of loans, mortgages and even credit card debts in case of the insured’s death. This can help others and especially your family to be relieved from some of the financial responsibilities you have incurred in order to enable them concentrate in the process of healing.
Funeral Costs
Burial costs may come as a shock, and they also can cost anywhere from hundreds to thousands of dollars. But all these costs can be catered for by life insurance thus allowing your family give you a worthy burial without a lot of straining financially.
Peace of Mind
The fact that, with proper preparations, your family will be financially secure when you’re gone is perhaps one of the best feelings anyone can have. Life insurance entails that one is able to make future plans irrespective of the future that is waiting for him or her.
Inheritance and Legacy
It also can be used as a way of providing an inheritance for the selected heirs or as a source of funding a non-profit organization. This can make some great impact and help change the world hence making your noble contribution that will benefit others once you are gone.
Who Should Consider Life Insurance?
Even as life insurance is a critical necessity for many individuals, it is not for just anybody. Here’s a closer look at who should consider purchasing a policy:
Parents and Guardians
If you have kids or persons who depend on your income, then you need to take life insurance. It also guarantees that they have the necessary financial support though you are not alive anymore. It can be regarded as sort of a ‘safety mechanism’ that is used to secure their future.
Homeowners
If you have a family home, for instance, life insurance will cater for your home buying price to avoid other families displacing your family upon inability to pay for the house. It is even more crucial where the breadwinner of the family is your spouse or partner and they depend on the amount you make to pay rents.
Individuals with Debts
Life insurance ensures that your family does not pay the debts in case you die especially if you have many debts to pay. It can guarantee that they will not be financially left shoulder with your numerous responsibilities.
Business Owners
To the business people, life insurance comes in handy a way of generating capital for enabling the business to continue in case of the owner’s demise. This will enable the employer or the business owner to be assured that its employees are well taken care of and hence facilitate the sustainability of the business.
Stay-at-Home Parents
It does not mean that if you are a house wife or if you are not a working mother, then them need of being insured is not at all compulsory. Caregiving and managing household chores are some of the roles that people give little value when in fact, if the worst came to the worst, your partner will have to hire somebody’s help or have to change his/her lifestyle in a way that he/she cannot afford.
Which Type of Life Insurance is Right for You?
That’s why there are several types of life insurance that can be divided into two broad categories. Understanding these options can help you make an informed decision:
Term Life Insurance
Term insurance offers cover for the Policy for a limited number of years usually between 10 and 30 years. Should you die during this term, then the participants will be paid cash as per the amount stated in the policy. It is flexible and cheaper than the permanent life insurance hence preferred by young families who have young children.
Pros and Cons of Term Life Insurance
- Pros: Payments are less compared to traditional plans, is easy to comprehend and offers variability regarding the number of terms.
- Cons: Termination: the policy ceases after the term; the cash value does not build up.
Whole Life Insurance
Whole life insurance provides insurance cover right from the moment you purchase the policy until you die provided you are willing to pay for the policies premiums. It also has an investment flavour whereby_money is accumulated and invested and grows as time goes on. It is usually costly than term life insurance, but it can be suitable for those who would wish to pass money to the next generations or create an investment.
Pros and Cons of Whole Life Insurance
- Pros: People want coverage that is permanent, increased cash value, and fixed and low premiums.
- Cons: In medical insurance higher premiums and more complicated policies.
Universal Life Insurance
Universal life insurance is an all-purpose sort of policy in which one can change the amount of premiums to be paid and face amount. It also has a cash value component of which the growth rate can vary, and may also be in cash, in this case, provided by the owner. ;This kind of insurance products can be appropriate for those people that are interested in having more individualized experience.
Pros and Cons of Universal Life Insurance
- Pros: The ability for policyholders to set their premium amounts as well as the death benefit, ability for cash values of policies to grow.
- Cons: Complication: changes in the interest rates can have an influence on the cash value.
Variable Life Insurance
Variable life insurance utilizes life coverage with a characteristic of an investment instrument. They can who use the cash value can invest it in different forms including buying stocks or bonds. However, this decision making increases the prospects of gain because it also involves the prospects of loss.
Pros and Cons of Variable Life Insurance
- Pros: The prospects of funds growth, the possibility of choice of flexible premiums.
- Cons: Market risk is one kind of risk, which is widely recognized, but its management process is relatively intricate and knotty.
A Personal Anecdote
A friend of mine once selected whole life insurance because he or she wanted to guarantee that the family’s finances would be secure in the distant years. He liked the fact that it had the cash value, given that it came in handy as a form of retirement plan. Mark’s decision demonstrated that one should always ensure that they take a decision on the kind of life insurance that they want depending on their long-term financial plan.
How Much Life Insurance Do You Need?
It is always confusing as to how much life insurance should one should get. However, here are some guidelines to help you estimate the appropriate coverage:
Consider Your Income
Another guideline that is often used is that one should seek life insurance which is about 10 to 15 times the annual income of the premium payer. This can thus help facilitate that your family can be in a position to meet their desired standards.
Factor in Debts and Expenses
List all your remaining payments on the assets acquired, such as your house, car or any other material things you may have bought on an installment basis. Include other foreseeable costs in your life such as college education for your children.
Evaluate Your Family’s Needs
You should think about what your family needs now and in the future, what the money will be needed for – daily needs, children or any other family plans. Consider the time you wish to feed them financially.
Use Online Calculators
There are several online tools available that have been provided by insurance companies to help the client know the amount of coverage they may need. These tools can offer an even better estimate that suits your conditions much better.
Consult a Financial Advisor
In case you are not too certain on the amount of coverage to take, you should consult a financial planner. They can give important decision based on the financial condition and need.
How to Purchase Life Insurance
Once you’ve decided to purchase life insurance, here are the steps to follow:
Assess Your Needs
Those who intend to shop for a policy should first analyze them and evaluate their present position in order to choose the type of coverage that they want.
Research Insurance Providers
Search for insurance agents who give services from insurance companies with sound financial solvency and customer feedbacks. Thus, use quotation to get out comparative policies regarding the best match for your requirements.
Get a Quote
A vast majority of insurance firms provide free quote services over the internet. Some of the details to enter are used to provide estimates on the offer of various policy types.
Undergo Medical Underwriting
If you are dealing with any life policy or if the limit of coverage is high then the insurance company would want to make some medical underwriting, which might require you to go through some pre insurance medical examination. This makes it easy for the insurer to evaluate your risk level and accordingly decide a way forward.
Review the Policy
When reading such policy, it is important to go through them with a fine tooth comb, and consider aspects such as coverage limits, policy provisions, and conditions as well as any limitation to coverages. It is important that you are sure with what it encompasses and what is excluded.
Designate Beneficiaries
Make sure that the policy states the clear names of your beneficiaries. Make sure that their data is current and correct.
Keep Your Policy Updated
One should always remember to revisit the life insurance policy and possibly change it depending on some events that may happen in your life, for instance, marriage, birth of children, changes in income among other factors.
Common Misconceptions About Life Insurance
One is bound to encounter a number of myths about life insurance which make many individuals give up on the idea of purchasing a policy. Let’s address a few of them:
“I’m Too Young for Life Insurance”
Many youths are under the impression that life insurance is something which is necessary only when one has aged. But that is why if a person buys his or her policy at a young age, then they are able to pay lesser amounts of premium while at the same time being assured of a policy to cover them for some time. The way that it is set up makes it ideal for early savings, in that the more you start putting away, the cheaper it becomes.
“Life Insurance is Too Expensive”
In some cases, it may be expensive but there are good policies which are cheap and one of them is the term life insurance. This is because they vary from one company to the other and you should ensure that you choose a policy that comes with a price that you are comfortable to pay. It might also amaze you to learn that it does not have to be expensive.
“I Don’t Need Life Insurance if I’m Single”
That does not mean that those who are single should not take the cover as it also has its merits. Personal, it can provide for all your outstanding bills and even funerals which will leave your family and friends with no debts to pay. You could also maybe leave money to charity or your parents if in case you die.
“My Employer Provides Life Insurance, So I Don’t Need My Own”
Often, the life insurance you get through the employer could barely be enough for your family’s needs. Also, in case you switch your employers, it can prove to be disadvantageous in the sense that you lose this coverage. However, getting an attached policy will be wise if you would want to have an extra coverage. Well it is just like going that extra mile in your efforts to lock the door of your home.
“Life Insurance is Only for the Wealthy”
Contrary to what people may think, life insurance is not intended only for the well-off; it’s an investment that people in all walks of life can take advantage of. It is about the people close to you and maintaining the economic well being of those that are dear to us.
The Process of Filing a Life Insurance Claim
In the sad case of the policyholder passing on, the dependants must seek to receive the pay out which is known as the death benefit. Here’s a breakdown of the process:
Obtain a Death Certificate
The first is to get an official certificate of death. The is a very important one because it is used to file the claims.
Contact the Insurance Company
A beneficiary should get in touch with the company of the life policy and notify the death and request for form to process the claim. It is mostly offered on company’s website or via a mail drop off to complete and sign.
Complete the Claims Form
It is also very important to write out all the details on the claims form as accurately as possible. They may include identity number, and information regarding the deceased individual as well as the cause of death.
Submit Required Documentation
In the process, you will also be required to fill the form which will involve the claims, then be followed by other specific items such as the death certificate and any other extra information that the insurance company may require you to provide. See to it that each of the documents is correct and comprehensive.
Await Processing
After it has been filed, the insurance company will look at the different aspects of the claim. The whole process of resolving a specific claim might take several days up to several weeks or even months if the case is rather complicated.
Receive the Death Benefit
If the claim is granted, then the insurance firm will pay the beneficiaries the amount of money stated in the policy as the death benefit. The benefit can be usually obtained as a single large sum or through an annual pension depending on the conditions of the policy.
Conclusion
Everyone should find it necessary to include life insurance in his or her financial planning. It provides satisfaction, provides money for the needs of your dear ones, and often helps to pay for something. However, by assessing your needs and the various forms of life insurance and getting the right form of the policy in case you are taken away from your family, they will be able to cope with the loss of your Income.
An unpredictable life is a life full of risks and that is where life insurance comes in handy so customers can just focus on the things that really matter. Therefore, take your time and assess your state and come up with reasons to purchase the life insurance policy. Of course, it is not only self-protection, it is the protection of the future generations of the people you love.
