In the US, 44% of the population have life insurance. Many people are conflicted on the value of life insurances. If you’ve dependents, you would love to learn more about life insurance.
Life insurance is a sound financial plan for your dependents’ or a business future. The promise that your children will continue education, achieve financial freedom even after death is highly satisfying.
Majority of families or businesses suffer a significant loss in case a caregiver dies indefinitely. You don’t want that, right?
This article has life insurance explained in full details.
What is Life Insurance?
Life insurance is a policy that pays a set amount of money after the death of an insured person. In other cases, payment can be after an agreed period. The type of insurance determines how much premium you pay and claims amount you receive.
Life insurance involves four main parties
- Insurer: The insurance company whose responsibility is to pay claims. There are more than 5,954 insurance companies in the US. The insurance company’s stake in life insurance are the monthly premiums by the insurance holder.
- Insurance holder: The owner of the insurance whose role is payment of premiums
- Beneficiary: The person or business to receive the claim after the insurance holder’s death.
- Insured: Is the person whom the insurance policy is based.
When getting into a contract for life insurance, you must choose the beneficiary. If you’ve several dependents, you must wonder if all will be covered. The answer is yes. You can have as many beneficiaries as you want.
Just make sure the share of each beneficiary sums to the 100% total claim amount.
When children are beneficiaries, there are essential things to consider. If you pass on while the child is still a minor, the proceeds remain in the account. The recipient can only claim when he or she is of the right age.
Alternatively, you can assign a custodian to manage the money on behalf of a child.
Note: Although life insurance is under your name, it’s not for you.
Types of Life Insurance
Having choices is good. It makes you select the insurance cover that best suits your needs and interests. The insurance world offers overwhelming kinds of insurance policies. So, which option is best for you?
Below are the different types of life insurance policies.
- Term Life Insurance: The policy covers you for an agreed period. The maximum period of coverage is 30 years and a minimum of 10 years. Research suggests that majority of people outlive the insurance. So, what happens in such an incident? Worry not.
If you don’t breach the contract, your beneficiaries will still get the claim.
- Permanent Life Insurance: This policy covers you for life. The package is suitable for people who want to lock in a rate, then leave an inheritance.
- Specialty Life Insurance: The policy covers a particular type of need, such as paying school fees or burial expenses upon death.
The different packages have different prices. However, permanent life insurance rates are higher than term and specialty life insurance.
Life Insurance Pricing
The average cost of life insurance is $67.88 per month for a $250,000 worth policy. The price of life varies based on the following factors:
- Type of Policy: As covered above, there are different types of life insurance; permanent, term, and specialty life insurance. Under the three main categories, there are more subcategories to consider.
- Health Condition of the Insured: Health condition of the insured determines the mortality rate of the dependent. So what factors determine the mortality rate?
Family health history, lifestyle behavior like smoking, and the existence of chronic health conditions, among others count.
The higher the health risks, the higher the charge.
- Age: The older the insurance holder, the more expensive the life insurance policy.
- Hobbies: Hobbies determine what extents of risk you get yourself. Dangerous hobbies will attract higher charges for your life insurance cover.
- Gender: On average men pay higher for life insurance than women.
- Insurer: Different companies have set different rates for life insurance.
With all factors put into consideration, the rates for life insurance will vary for different persons.
You must be curious averagely how much it would cost for your life insurance? Get a life insurance quote to budget for it easily.
Pros and Cons of Life Insurance Policy
Life insurance is a pillar to your personal finance.
Before enrolling for life insurance, you should evaluate whether the investment is worth it. How do you assess the worth of the insurance policy?
Analyze the benefits and shortcomings of life insurance to help make a sound decision.
- Protection: The underlying value of the insurance policy is the death benefit. Death brings many misfortunes to the dependents and loved ones. Challenges like burial expenses, income replacement, and debts are significant liabilities.
Life insurance helps fill all financial gap.
- Tax Benefits: Life insurance policy is usually tax-free. If you consider taking a loan from the policy, all taxes are deferred. Make you don’t exceed the set amounts of premiums or breach contract.
- Builds Financial Confidence: Life insurance ensures financial freedom for your family in case of premature death. With such financial plans, you can shut down your worries. How will your children finish their education if you die? Will the business continue?
Such worries are gone due to the confidence of the back-up financial plan.
- Cheap and Affordable: Life insurance in today market is now cheap and manageable. Life insurance is no longer a luxury good. Term life insurance rates continue to lower, and life span expands. With your income, you can find an affordable insurance policy.
- Flexibility in Life Insurance Choices: The life insurance market is highly diversified. It gives many alternatives to choose from. You can select the company, coverage, beneficiaries, and other conditions.
With some insurance policies, you can adjust the premium rates in case your income shrinks with time. Besides, you can change the beneficiaries if need be. The flexibility gives you control of your finances.
Note: The benefits of life insurance varies depending on the type of coverage you opt.
- Not Necessary: If you’ve no dependents, the life insurance can be a waste of funds. It becomes of value if you have people depending on you.
If you currently have no dependents, you can forgo the life insurance for other types of relevant covers.
- Lack of Trust: It’s challenging to build trust that the claim will be met upon death. There’s fear of what could happen if a company collapsed after dedicating lifetime investment.
The fears are normal. No one wants to lose their money. However, the challenge is easy to solve by choosing a company with high financial rankings.
Choose the right insurance company to avoid anxiety.
- Opportunity Cost: People find life insurance a luxury. At some point, you’ll find yourself thinking how you would spend the premiums elsewhere. If the concerns grow profoundly, it’ll give you a reason to forgo the life insurance policy.
Keep a positive mind. You shouldn’t think of life insurance as an opportunity cost. No satisfaction can compare to the confidence that your family can pay bills if you’re gone.
If you’ve a share of family struggles due to the death of the parent, then you understand.
- Confusion; Life insurance policy like other policies has particular demands. The conditions can be confusing if not well explained. The terms make life insurance complicating.
The confusion is one of the reasons people forgo life insurances.
Caution: Before signing the contract, get to understand every bit of the policy. You can ask your lawyer to go through the policy to avoid future compromises.
Although life insurance has drawbacks especially if you’ve dependents, the investment is worth it.
When Do You Need Life Insurance?
At what point should you enroll for life insurance? It’s a common concern for many. If it’s your worry too, we got you.
The least age you can acquire the life insurance is right after birth. To take life insurance for your newborn or not is a debated topic.
There’s no predetermined age for acquiring life insurance. However, research recommends only to purchase a life insurance policy once you have dependents.
The life insurance value is optimal if you’ve dependents, especially children or your partner.
Caution: Do not rush into buying life insurance if you still have doubts about its value. Insurance agents can be convincing. Take your time to analyze life insurance is worthwhile for you.
Bottom Line of Life Insurance Explained
If you’re considering having life insurance, you’re on the right path to future financial planning. Life is full of misfortunes. Save your family from future financial instabilities with life insurances..
You want to ensure their future is secure whether or not you live. Life insurance can be a financial safety net for your business or dependents.
Life insurance explained helps you make sound decisions. Browse our online magazine for some more healthy lifestyle tips!