Why Do I need Life Insurance?
Different
people have different reasons for buying life insurance.
Many people purchase life insurance in order to provide for their families in the event they pass on. If you are the primary wage earner in the family, it is a good way to help provide your family with a stable financial future. Life insurance may be important even for those who are not the primary wage earner in the family, to help cover the financial burden of childcare, funeral expenses, or any other unforeseen costs that can arise.
Other
people buy Life Insurance to cover specific larger costs that will arise should
they pass on, such as to cover the balance on their mortgage or if they are a
partner in a business the business may carry Life Insurance to cover the cost
of paying out their partnership interest to their estate.
Estate
planning is another reason to buy Life Insurance. A compete discussion of
Estate Planning is beyond the scope of these pages and you should discuss this
with your trusted financial professional however Survivorship Life and other
structured Life Insurance policies can form an important part of good Estate
and Tax planning.
Read also : Cheapest Life Insurance
Your
reasons may change over time. Early in your family life the reason may be to
protect a young family financially while latter in life the focus may change to
accumulating cash value and/or to focus on Estate Planning purposes.
Whatever
your purpose and whatever Life Insurance vehicle you choose, we are here to
help you find the lowest possible rate!
When should I buy Life Insurance?
Partly,
this is determined by why you are purchasing Life Insurance.
If
you find yourself at a time in your life where you are responsible to more
people than just yourself, purchasing Life Insurance is usually a financially
responsible thing to do. If you have started a family, you may want to protect
them financially if something should happen to you. In other words, now may be
a good time.
Life Insurance premiums tend to rise as your age rises, so entering a policy early in your life can have financial advantages. If you choose Whole Life or another for of Life Insurance that accumulates a cash value over time, then the earlier you begin the more time there is for the power of compounding investment returns to increase the value of your policy. The difference of even a few years can have a incredibly significant impact on the eventual cash value of your policy.
It would be nice to be able to say "its never too late" but in the case of Life Insurance that is not always the case, especially if premium cost remains an issue. The later you leave it the more it will cost, and in some cases it may be simply too late to be financially viable, particularily if you should encounter poorer health later on.
Having said that, it is defintely never too late to find out what it would cost, and that is what we are here for!
Should I buy Term or Whole Life?
There
is more to "Life" (Insurance) than just Term and Whole Life Insurance
but they are the basic choices and most other forms are a derivative of one or
the other. We recommend that you take the time to read the individual pages on
our site, dedicated to each type of available Life Insurance, as well as
consulting a trusted financial professional.
For
this space though, here are some basics about "Term" and
"whole" and some things to consider.
Term
Life provides financial protection for a limited, specified period of time,
paying a single lump sum (or death benefit) to a beneficiary if the
policyholder dies during the policy term. The face value of the policy
determines the amount paid to the beneficiary. No benefits are paid if the
insured person is alive at the end of the policy term. As a result generally
speaking Term Life is less expensive that Whole Life.
Whole
Life provides insurance coverage for your "whole life" , until the
time you die. Coverage continues as long as you, the policyholder, continue to
pay premiums. Like term life, whole life also pays a lump sum to your listed
beneficiary upon your death but the insurance company also invests part of your
paid premiums in long-term bonds and mortgages, and other assets, and as a
result Whole Life accumulates a "Cash Value" over and above the value
of the death benefit. Typically that Cash value can be borrowed against or can
be left to accumulate and paid out to your Estate. As a result a whole life
policy tends to cost more than a similar term life policy.
In
either case if you stop paying your premiums, the life insurance policy will
lapse and your beneficiary will no longer be protected. And, unless you've
owned a whole life policy for a substantial period of time, the cash value of
the account may be worth very little.
Which
type is right for you comes down to your needs, desires and circumstances. The
policy that best fits your needs is the right type of policy to buy. Life
Insurance should form a part of your overall Financial Plan and you should
consider your needs not only now but in the future. The primary consideration
in purchasing Term Insurance is very often cost however do remember its
limitations.
How do I choose a policy term length?
Longer
term life policies will cost more because they are extended over a longer
period of time, and because buying a policy later in life would cost more due
to health and age factors.
In
some cases, even though you may have a policy with a term of a given number of
years (say 15) the rates may increase during the term of the policy however the
advantage to longer term plocieis is that most often even though rates may go
up, you do lock in a rate schedule based on your health earlier in life, and
don't have to go through the process of another physical at that point as you
would with an entirely new policy.
You may only wish to purchase term life insurance for the amount of time you need to financially protect your family. You may wish to choose a term length that only extends until your children graduate from college, at which time they can earn income for themselves. Or, you may wish to match the term to the time at which you mortgage will be paid off.
In
the end, you are the only person that can determine the right term length for
yourself and your family, with assistance from you your financial advisor.
How are Life Insurance Policy Premiums Calculated?
Insurance
companies consider many things when setting your premium, mainly focused around
what the likelihood is that your life will end at a certain point in time -
that includes your gender, age, health condition, activities, and lifestyle.
Women may pay a lower premium than men of the same age because women generally outlive men. The younger you are and the healthier your lifestyle (e.g., not smoking) the lower your premium, this the physical exam most insurance companies require when you apply for life insurance coverage. This is a real and financially significant argument for purchasing your life insurance coverage as early as possible in your life.
Some
Insurance companies have more stringent requirements and so have more favorable
claims experience, which means better rates for accepted applicants. The cost
structure of the insurance company is another factor - if their cost of doing
business is lower, the lower they can set your premium.
That
is one reason you will normally find several carriers quoted when you use our
Life Insurance Quote forms, we want to present you with the best options
possible.
How much life insurance do I need?
If
you are providing financial support for people who are depending on you, you
need life insurance. To determine how much you need to replace your lost
income, deduct the total income that would be lost upon your death from the sum
required for your family's ongoing financial stability.
Beyond
that, it depends on your particular circumstances (e.g., whether you have
considerable net worth or few backup resources) and whether you want insurance
for other purposes, such as educational funds. The solution to your particular
needs may entail a combination of several policies, and the combination may be
changed as your situation
How do variable and fixed annuities work?
Annuities
are long-term vehicles used to provide retirement income to individuals without
pensions, to supplement a pensioner's income, or to build assets over a more
limited period. With variable annuities, the value varies according to the
worth of the insured's investment options chosen.
Payments
can be fixed or variable. Under a fixed annuity (also called a fixed-dollar
annuity), money is invested in assets with fixed rates of return. Because
annuities are designed to be held for many years, the interest in an annuity
builds up on a tax-deferred basis, and purchasers are generally not taxed until
regular payments begin after retirement.
Early withdrawals, however, result in substantial penalties in addition to income taxes.
Are medical tests to eliminate applicants who are
likely to develop a serious health condition?
Medical tests provide accurate and current information about an applicant's health, thus enabling insurers to charge premiums that reflect the level of risk an applicant represents.
Because
some health conditions are easily managed through proper medication, therapy or
lifestyle changes, medical information makes it possible for insurers to cover
applicants with certain health conditions. More serious or incurable conditions
present an enormous risk that an insurer simply cannot assume.
What should I consider in naming life insurance
beneficiaries?
- Always name a "contingent," or secondary, beneficiary, just in case you outlive your first beneficiary.
- Select a specific beneficiary, rather than having the proceeds of your life insurance paid to your estate. One of the great advantages of life insurance is that it can be paid to your family immediately. If it is payable to your estate, however, it will have to go through probate with the rest of your assets.
- Be very specific in wording beneficiary designations. Saying "wife of the insured" could result in an ex-spouse getting the proceeds. Naming specific children may exclude those born later. If your child dies before you, do you want the proceeds to go to that child's children? Changing the beneficiary designation is easy, but you have to remember to do it.
Due
to the various issues involved, an agent can be an excellent source of
information to help you properly set up your beneficiary designation.
Does it make sense to replace a policy?
Think twice before you do, because in many situations it may not be to your advantage. Before dropping any in-force policy, consider:
- If your health status has changed over the years, you may no longer be insurable at standard rates.
- Your present policy may have a lower premium rate than is required on a new policy of the same type (if, for no other reason, that you have grown older).
- If you replace one cash-value policy with another, the cash value of the new policy may be relatively small for several years and may never be as large as that of the original one.
- You will be subject to a new contestability period. You should ask insurance agents for a detailed listing of cost breakdowns of both policies, including premiums, cash surrender value, and death benefits.
Compare these as well as the features offered by both policies. If you decide to surrender or reduce the value of the policy you now own and replace it with other insurance, be sure that:
- the agent making the proposal puts it in writing;
- you pass any required medical examination; and
- your new policy is in force before you cancel the old one.
As a single person, do I need insurance?
The answer almost definitely is yes. You may want to consider these options:
- Disability income insurance - especially important for self-supporting singles without sizable assets, this can replace a good part of the income you would lose if you were unable to work because of accident or illness. If you don't have long-term disability coverage at work, ask your life insurance agent about an individual policy designed to replace at least 60 percent of your income.
- Health insurance - if you don't have on-the-job coverage, an individual policy is your first line of defense against ever-escalating medical and hospital costs. You can keep premium costs down by electing a large deductible, thereby "self-insuring" as much as you can afford.
- Life insurance - even if you have no dependents now, you may later. If you buy now when you are younger and healthier, you can "lock in" term coverage at a reasonable rate, including conversion features.
What happens if I fail to make the required premium
payments?
If you miss a premium payment, you typically have a 30- or 31-day grace period during which you can pay the premium with no interest charged. After that, the company with your authorization can draw from a permanent policy's cash value to keep that policy in force.
In some flexible-premium policies, premiums may be reduced or skipped as long as sufficient cash values remain in the policy. However, this will result in lower cash values and a shortened coverage period.
What if I become disabled and can't pay the
premiums?
Provisions
or riders that provide additional benefits can be added to a policy. One such
rider is a waiver of premium for disability. With this rider, if you become
totally disabled for a specified period of time, you don't have to pay premiums
for the duration of the disability
Are other riders available?
Yes.
An accidental death benefit, for example, pays an additional benefit in case of
death resulting from an accident. Some companies provide accelerated benefits,
also known as living benefits. This rider allows you, under certain
circumstances, to receive the proceeds of your life insurance policy before you
die. Such circumstances include terminal or catastrophic illness, the need for
long-term care, or confinement to a nursing home.
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