Life Insurance 101
Updated: Apr 11
Everything You Need to Know About Life Insurance
BY: Nicole Rubin- special guest writer.
It’s common to think that there's only one type of life insurance available and that it might not be right or necessary for you. In actuality, anyone who has others depending on their income needs life insurance. What’s more, there are actually different policy types, and with some good research, you can find a policy that best fits your circumstances. Let’s look at some of your options.
General Policy Terms
Before you launch into the world of life insurance, it’s important to know some general terms. Policies can fall into the category of whole life or term life. As Kiplinger explains, a whole life insurance policy is considered to be a permanent one because it only ceases once the holder has passed. This means both the premiums and death benefits are fixed. There is also usually a savings portion or cash value associated with these policies.
Term life policies, on the other hand, can be acquired for a set period of time and can expire while you’re still alive. These kinds of policies are less expensive than whole life ones. They are also a great alternative if you only need coverage for 10 to 30 years. Journal of Financial Planning points out they are a good option if you apply the difference toward other investments.
This type of insurance cuts down the paperwork that’s needed to get life insurance. U.S.News explains they’re great if you’re in a hurry to be insured or wouldn’t qualify for a traditional policy. Since you won’t need to take a medical exam, you don’t need to worry if you haven’t had a physical in a while. Instead of the medical, you would complete a questionnaire about the general state of your health.
Bear in mind that not having a health evaluation comes with a cost. These policies tend to have lower payouts and other financial limitations. The premiums may also be higher if you're older and have certain health conditions. And if you fail to disclose a health condition and it comes out later, your policy will be void.
In most cases, these kinds of policies can be a bit more complicated than what the average applicant requires. The great thing about these policies is that you have the opportunity to increase cash value while maintaining the final benefit. A universal life insurance policy is a good way for you to build the savings associated with your policy. If you pay a higher premium, the excess funds will be put towards the investment portion of your account.
Final Expense Policies
If none of the previous policies sound like they’d work for you, or if you expect your family to need an immediate payout to cover your end-of-life and burial arrangements, perhaps you should consider final expense life insurance. These types of policies give you the opportunity to make sure your loved ones aren’t left with a financial burden after your passing. The funds can be used to pay for funeral costs as well as outstanding debt. Some policies even give you the opportunity to plan all the details of your funeral and decide where the money should be spent.
Typically these policies are usually marketed to older adults, but they might also work well for younger persons who have a family. When doing your research, consider those that have a high rating with the Better Business Bureau (BBB). For example, you can read a review on Lincoln Heritage to determine if they are a company worth working with.
Life insurance can be confusing, but it’s a must for financial security. Weigh your options carefully, make sure you get enough coverage, and find the right type of solution for you and your family. And if you need guidance, keep in mind that as with any complex life decision, talking things through with a independent insurance agent is always a good choice.
Photo courtesy of Unsplash