What is life insurance and why is it important?
Insurance can be confusing and it’s hard to know what you really need or want. But here are five very good reasons why you need life insurance.
As we grow older, get married, build families and start businesses, we come to realize more and more that life insurance is a fundamental part of having a sound financial plan. Depending on your type of policy, life insurance is fairly cheap, which means there’s no excuse not to get coverage now. Plus, over the years, you’ll find comfort in knowing the money will be available to protect your loved ones in the event of your passing. Here are five other reasons why having life insurance is important.
1. TO PROTECT YOUR FAMILY AND LOVED ONES
If your loved ones depend on your financial support for their livelihood, then life insurance is a must, because it replaces your income when you die. This is especially important for parents of young children or adults who would find it difficult to sustain their standard of living if they no longer had access to the income provided by their partner. You will also need to provide enough money to cover the costs of hiring someone to cover the day-to-day household tasks, like cleaning, laundry, cooking, childcare and everything else a growing family needs.
2. TO LEAVE AN INHERITANCE
Even if you don’t have any other assets to pass to your heirs, you can create an inheritance by buying a life insurance policy and naming them as beneficiaries. This is a great way to set your kids up for a solid financial future and provide for any monetary needs that will arise.
3. TO PAY OFF DEBTS AND OTHER EXPENSES
In addition to providing income to cover everyday living expenses, your family needs insurance to cover any outstanding debts, like the mortgage, credit cards and automobile loans. Other expenses include funeral and burial costs that can easily run into the tens of thousands of dollars. You don’t want your spouse, parents, children or other loved ones to be left with any extra financial burden in addition to the emotional burden they’re already suffering.
4. TO ADD MORE FINANCIAL SECURITY
Like most parents, you probably want to know your kids will be well taken care of when you’re gone. You not only want them to get a quality college education, but to provide for other life ventures like getting married or starting a business. For this reason, additional coverage is absolutely essential while your kids are still at home.
5. BRING PEACE OF MIND
We can’t know when we’ll pass away. No amount of money could ever replace a person. But more than anything, life insurance can help provide protection for the uncertainties in life. Without a doubt, having life insurance coverage will bring you and your family peace of mind. It’s one thing you can be sure of and you’ll no longer have to question whether they’ll be taken care of when you’re gone. Life insurance protects your heirs from the unknown and helps them through an otherwise difficult time of loss.
Short answer: by buying now. No matter how old you are, you will never be younger than you are today. Age can be a significant factor in determining premiums. Many multi-line insurers offer special rates on either the life policy or the home or auto policy when you bundle your policies with one company, so ask if the company offers any incentives. Paying premiums annually can also save money on the fees often associated with monthly installments. Lastly, on certain products, going paperless on your payment modes may help you save, if you chose to pay with a bank check plan.
This is an important question because life insurance has no standard policy. Policy terms, prices, and exclusions may vary widely by company. But in general, insurance companies are in the business of offering coverage to as many customers as possible, not turning business away. Many activities such as scuba diving and mountain climbing that might have been excluded in the past are often accepted for an additional premium. Even people who have some chronic illnesses may find coverage if they’re willing to pay more. Most companies have a suicide exclusion, though, for the first year or two the policy is in force.
Maybe not. Many companies now offer no-medical-exam life insurance policies for qualified applicants. You answer a few medical questions during a simplified application process and the application may be reviewed in less than 24 hours. The older you are, the more health issues you have, or the higher the face value of your policy, the more likely you are to be subject to a medical exam.
It depends on whether you have a term or permanent insurance. With term life coverage, your premiums start out lower than comparable permanent coverage and stay fixed for the initial term. If you choose to keep your policy in force past the initial term, the premiums will likely go up. With permanent life insurance coverage, though, as long as you don’t let your policy lapse, your premiums are guaranteed not to increase for the rest of the owner’s life.
Most life insurance policies have a variety of optional benefits, called riders, which may be available for an additional cost.
- Disability riders may cover paying your policy premiums while you’re disabled and may supplement your lost income.
- An accelerated death benefit rider lets you collect a portion of the policy’s death benefit if you become terminally ill with a short life expectancy, such as one year.
- A critical illness rider pays a lump sum if you’re diagnosed with one of the critical illnesses specified in the insurance policy, such as cancer, heart attack, stroke, kidney failure and others. Instead of reimbursing you for medical expenses, the way health insurance does, a critical illness rider provides money to use for any purpose during the course of treatment.
Every insurer has their own selection of riders, so be sure to ask what’s available with your policy.
If you’ll need to replace your income for your loved ones if you were to die, you may be counting on Social Security to cover some of the burden. The reality is that, in most situations, Social Security benefits are only paid out if a surviving spouse is over 60 years old or has children under the age of 18. If that doesn’t describe your situation, you should consider life insurance to help make up the difference.
Premium rates for term policies are typically lower than those for permanent ones (if applying for the same coverage), but there are tradeoffs. For one, premiums on term policies typically go up substantially at the end of the initial term – usually 10, 20 or 30 years. And, if you stop paying premiums for any reason, you are no longer eligible to receive death proceeds and your family’s financial future could be at risk. Term policies are good for financial obligations that end, like a home mortgage or education costs.
On the other hand, permanent policies (aka Whole Life policies) are good for retirement planning, income replacement, and ongoing financial obligations like caring for a family member with a disability. Permanent policies can accrue cash value and stay in force as long as you pay the premium. They may require a medical exam but usually have fixed premiums that won’t go up even if your health takes a turn for the worse. It’s an important decision to make and an important question to discuss with your agent.
The group policy your employer provides may be affordable and easy to enroll in
without a medical exam. However, group policies may only pay an amount equal to one
or two years’ salary, or a similarly limited amount. That may not be enough to cover
your family’s needs (mortgage payments, education costs, living expenses) if you pass.
Also, you may not be able to take it with you if you change jobs. Having a personal
policy to supplement your employer-provided policy makes sense to ensure coverage
during all the ups and downs in your life.