.png){kind=spacer}
Learn the basics about life insurance so you can get the best coverage for your family.
You probably haven’t thought about dying today. Hopefully not. In fact, hopefully you won’t have any reason to think about that subject for years and years to come. And that’s one of the reasons people don’t often think about the importance of life insurance—because it’s kind of a bummer.
But there’s one very good reason to take just a moment and consider your options when it comes to getting a life insurance policy, and that reason is the safety and security of your loved ones if you should pass away unexpectedly.
To help you as you consider that important topic, here are the key things you need to know about life insurance so that you can make sure your family is protected for the long run.
Replacing your salary/income for years to come
Leaving a significant inheritance for future generations
Covering funeral costs, which are often more expensive than people realize
Paying for federate and state death/estate taxes
Proving an opportunity for charitable donations
There are two primary types of life insurance you can purchase: Term Life and Whole Life. Let’s dig a little deeper into each.
Term Life insurance is simple in that it only pays benefits if the person insured dies during the terms of the policy. (And it should be noted that term-life policies can range anywhere from one to thirty years.) So, if you were to pass away during the agreed-upon time range for the policy, your beneficiaries would receive the agreed-upon financial amount.
There is one more wrinkle for term-life policies. Most policies keep the same death benefit (the amount of money paid out after your death) throughout the entire term. However, some policies, called “decreasing term” policies, lower the death benefit for each year of the policy term. That’s a way to potentially save some money on the premiums, but it also potentially reduces the benefit your family would receive.
Whole Life insurance is different from Term Life insurance in two main ways. First, whole life policies usually last for the entirety of your life. (They last for your “whole life,” in other words.) And you typically pay the same premium for as long as you have the policy. Second, Whole Life policies have cash value. Meaning, you can actually benefit from the policy without dying. You can withdraw some or all of the cash value, and even use it as collateral to borrow money. Forbes wrote an interesting article about it being considered an investment.
There’s no set amount for a life-insurance premium. Rather, the cost is based on several factors that are specific to you as an individual. However, there are some principles that are generally true when it comes to pricing life insurance:
The higher the benefit, the higher the cost.
The younger you are as a policy holder, the lower the cost.
The healthier you are as a policy holder, the lower the cost. (And the opposite is true: if you have dealt with significant health challenges in the past, you will likely find high premiums.)
Term Life is generally less expensive than Whole Life.
Once again, the amount of life insurance that makes sense for your situation is unique. However, there are some key questions you can ask when determining how much insurance you need:
How much can you afford to pay each month for life-insurance premiums?
How many dependents are currently reliant on your income as their sole source of security?
What are the immediate expenses that would need to be covered if you were to pass away? (Including debts, funeral costs, taxes, and so on.)
What are the longer-term expenses that your family will need to cover without your income? (Including college, down payments on homes, weddings, and so on.)
Are there charitable organizations you would like to receive donations after your death?
For people in many situations, the biggest mistake you can make is procrastinating when it comes to actually purchasing a life-insurance policy. Putting it off or refusing to explore your options when it comes to life insurance is essentially placing your loved ones at risk.
Nobody plans for something unexpected to happen—that’s why it’s unexpected. But you can take steps to make sure your family is covered if the worst should happen to you. Don’t procrastinate and don’t tell yourself you’ll figure it out tomorrow.
Many people believe that the only purpose of a life insurance policy is to replace the money that would be lost if a breadwinner passes away. As a result, many families only have a life insurance policy for the adults who earn a significant portion of the family income—including refusing to buy insurance for children and for non-working spouses.
That’s a mistake for two reasons. First, one of the main benefits of life insurance is to provide financial resources that cover funerals and other end-of-life expenses. So, if you don’t have coverage on a family member who passes away, you may add a large financial burden on top of the grief of losing a loved one.
Second, people underestimate the value of a non-working spouse. While such a spouse might not contribute income to the family, he or she likely does contribute a great deal to the overall well being and proper functioning of your household. Therefore, if that person passes away, you will need resources to pay others to fill different aspects of that person’s role in your home.
One aspect of this mistake occurs when a policy holder only names one beneficiary to his or her account. Why is that a mistake? Because it’s possible that beneficiary may pass away or become incapable of handling his or her duties. In fact, it can be common for one spouse to name the other spouse as the sole beneficiary, but then have both spouses die in an accident.
Instead, it’s important to name at least one backup beneficiary who can take over if the primary beneficiary is not able to do so.
The other mistake people often make is failing to update their beneficiaries over time—and especially failing to update their information after major life events. At regular periods, it’s critical to look over your life-insurance policy and make adjustments based on deaths in the family, divorce, new children, new addresses or contact information, and so on.
Many benefits packages in today’s workplaces include automatic life-insurance policies for employees. Sometimes these policies are included at a base level, but can be increased by having relatively small premiums deducted from your paychecks. In addition, some benefits allow you to purchase life insurance for your spouse and/or children—again at discounted prices that can be easily and efficiently discounted from your paycheck.
Failing to take advantage of these opportunities is a mistake because it leaves additional insurance on the shelf. It’s a missed opportunity to provide additional care and security for your loved ones.
If you’re not sure whether your company includes these life-insurance benefits and packages—or whether you have signed up for them—talk to your HR representative.
People like low prices, and it’s common for people to default to the cheapest life-insurance policies they can find. But settling for the cheapest price typically means settling for less help and security for your loved ones in the event you pass away unexpectedly.
Instead of looking only at prices, focus on the benefits offered to your family in the event of your death. Work with an agent to find the best balance of affordability and security—both for yourself and the ones you love.
5 easy ways to lower your rates and maximize your benefits
Do you like protecting your family in the face of unexpected tragedy? Check. Do you like saving money? Check.
Then you’re going to love these five tips for saving money and maximizing the effectiveness of your life-insurance policies.
.png)
.png)
