As of 2020, around 54% of the U.S. adult population was covered by life insurance of some type. If you’re part of the 46% who have yet to purchase life insurance policies, now’s a good time as any to make that important step.
Understandably, the decision to purchase life insurance is not always easy on an emotional level. It means you have to think about the end of life, which is not always a comfortable endeavor. Still, life insurance can go a long way in protecting your loved ones in the event of your demise.
When it comes to purchasing permanent whole life insurance, there are numerous details you need to get right. In today’s guide, we outline everything you need to know about life insurance so you can make an informed and confident decision.
Read on to learn more.
What Is Life Insurance?
Life insurance refers to a contract between an insurer and a policyholder where the insurer commits to pay a specified amount of money upon the death of the policyholder. This money is paid to a beneficiary designated by the policyholder.
In exchange, the policyholder pays a monthly or yearly premium during their lifetime.
Depending on the contract, certain events such as critical or terminal illness may also trigger payment of the set amount by the insurer.
Why Is Life Insurance So Important?
People can buy life insurance from Ontario to ensure that their family is financially protected once the insured person dies. Life insurance payouts offer family members immediate income that they can use in various ways.
The funds may be used to cover expenses related to the death and funeral of the policyholder. They could also help pay for basic living expenses or any other purpose.
What to Know About Life Insurance?
One of the top reasons so many people don’t have life insurance is that they know little about this type of insurance. The following seven points about life insurance should help get rid of any confusion.
1. Different Types of Life Insurance
Life insurance is available in two main types:
- Term insurance
- Permanent insurance
Let’s look at each more closely.
Term Life Insurance
As the name suggests, term insurance provides coverage for a set length of time, also known as the term. In most cases, the term ranges between 10 and 30 years.
Insurers can allow you to change your policy’s term if you wish to. For instance, if you purchased a plan for 15 years, you can decide to extend it to 30 years after the first two, six, or even ten years.
Keep in mind that term insurance doesn’t have cash value. The policy expires at the end of the set term unless it is convertible insurance.
Permanent Life Insurance
With a permanent life insurance policy, the policy lasts for life. Certain insurance companies may also offer a plan that lasts to age 65. Talk to your insurer to understand the length of their permanent policy.
Permanent life insurance has two categories:
- Whole life insurance
- Universal life insurance
Whole Life Insurance
When it comes to whole life insurance, the premiums are fixed. These premiums are based on the issue’s age and typically do not increase with age. You keep paying the premiums throughout your life unless you have a limited policy that matures in 10 years, 20 years, or once you reach 65.
Your whole life insurance policy will build up cash value over time. In case you decide to opt-out of the policy, your insurer can be returned to you.
Universal Life Insurance
A universal life policy offers the policyholder investment opportunities. You may notice that your premiums change over time, depending on how you manage the plan.
Some of the factors that impact the size of your monthly installments include cash values, your investments, and so on.
A huge benefit of universal life insurance is that you can borrow from your policy.
2. You Need to Assess Your Financial Health
Before purchasing a life insurance policy, it’s important to have a clear picture of your financial situation. This way, it’s easier to determine what type of policy will work for you, as well as what size of policy to purchase.
Consider the measures you’ve already put in place to ensure your dependents are well taken care of financially when you’re gone. Perhaps you have retirement plans, an emergency fund, and so on. After a thorough assessment of these measures, you might discover you’re not sufficiently prepared for the unexpected.
Choose the right financial professional to help you determine the appropriate needs to cover with a life insurance policy. These may include your mortgage, your children’s school fees, your business’s maintenance, and so on.
3. Rates Differ Based on Various Factors
The cost of life insurance can vary significantly based on a variety of factors.
One of these factors is the coverage amount you choose. The higher the policy payout amount, the larger the premium you’ll need to pay. For instance, a $2 million policy will have a higher premium than a $500,000 policy.
The type of policy and the length of the term also affect the cost of insurance. Generally, permanent life insurance costs more than term insurance. And for term insurance, a 30-year policy will cost much more than a 10-year policy.
Another factor that affects life insurance is the policyholder’s age. Older people have to pay more for a policy than younger people.
Insurers are also interested in your health when determining your policy cost. Most will require clients to take a medical exam and submit health records when applying for a policy. People with pre-existing health conditions such as diabetes and heart disease may have to pay higher premiums.
4. It Pays to Shop Around
All insurers are not made equal. To get the best service and the friendliest rates, you need to compare quotes from multiple insurers.
The great news is that most insurers have a company website where you can get a quote. Take advantage of this and check what various insurance companies offer before making a final decision. You could start by visiting American Amicable to get a free quote.
Another smart move is to use the services of an independent insurance agent. Seasoned agents have extensive knowledge of the market and can help you find the most suitable coverage for you and at the most affordable interest rates.
5. You Need to Look Beyond the Premium
Most life insurance buyers focus too much on the insurance premium. There’s no problem in being interested in the premium you’re going to be paying for your policy. After all, you want to be sure that the premium you pay fits comfortably within your budget.
However, there are other costs beyond the premium that you should also think about. For instance, you need to understand all of your insurance policy’s internal costs. You want to make sure that you don’t fall prey to dishonest practices when it comes to such costs.
6. The Application Process Can Be Lengthy
Purchasing life insurance is a huge commitment, and you can expect to fill out a lengthy application. Generally, the insurer will need information about your age, weight, medical history, mental health, tobacco use, and family medical history.
You may also need to provide information regarding your driving record. Moreover, insurers may be interested in the type of job you do and your hobbies to determine whether they’re dangerous or not. Your answers help the insurer determine an appropriate insurance rate for you.
7. Honesty Is Key
It’s critical that you answer all the questions truthfully during your application. Avoid omitting or obscuring necessary details.
Many insurance companies use third-party sources to verify the information you give them, provided you allow them to access your data. Your insurer may be able to get information that relates to you by retrieving your medical records, prescription medicine history, public records, and vehicle records.
Besides, many insurance agencies will require you to take urine and blood tests, in addition to other medical tests. If you give false information regarding your health, these tests will reveal it.
Protect Your Loved Ones by Buying Life Insurance
Purchasing life insurance is one of the best ways to ensure your loved ones are safe financially after you pass away. Given how big this step is, it pays to become as knowledgeable on the subject of life insurance as possible. This way, you’ll be happy with your policy and comfortable with the premiums.
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