Having life insurance during a pandemic gives you a sense of security, knowing that your loved ones will still be financially-secured even after you die. In this guide, I’ll be talking about everything you need to know about life insurance.
What Is Life Insurance?
Achieving several milestones in your life, such as advancement in career, business growth, among others are an indication that you’ll soon be needing life insurance to protect the assets you’ve built for your family from unexpected circumstances such as illnesses, life-threatening injuries, and even death.
Life insurance is a legally binding contract that exists between the insurer and the policyholder. The insurer warrants that the chosen beneficiaries of the policyholder will get benefits after a certain event indicated in the contract, for example, the policyholder dies, in exchange for the premiums. In rich countries, life insurance is a popular form of saving and investment.
A life insurance’s original function was to financially support widowers when they bury their dead loved one, and lastly, to take care of the children left behind. Nowadays, the benefits from life insurance can be used by the policyholder’s family to pay bills, mortgage, and even pay for a child’s education. Therefore, at present, life insurance is a robust product.
How Does Life Insurance Work?
To help you understand life insurance better, let me define some terminologies for you:
Policyholder
A person who has an existing contract with an insurance policy.
Premiums
The premiums can be paid in full once or regularly over time by the policyholder to the insurer.
Beneficiaries
A beneficiary can be the spouse, children, trust, or any person identified by the policyholder in his life insurance as beneficiary. A beneficiary is the one who will receive the tax-free money after the death of the policyholder. A beneficiary can either be a primary or contingent beneficiary.
Death benefit
The death benefit is the tax-free sum of money the beneficiaries get when the policyholder dies. The death benefit can function as an income substitute so that the beneficiaries can still live life normally, financially, at least.
Riders
Did you know that you have the power to change the features of your life insurance policy?
You can even make your premiums covered when you become jobless or add a beneficiary. This can all be done by paying for a rider.
Cash Value
The cash value is different from the death benefit. A part of the premiums you pay goes here. It is a saving account that can grow depending on the policy. You may use this during an emergency or as a payment for premiums. If you get a loan from cash value before you die, then the loan will be deducted from the benefit.
What Are the Types of Life insurance?
According to Forbes.com, there are two primary types of life insurance, namely, term life insurance and permanent life insurance:
Term Life Insurance
Term life insurance can cover you for only a specific amount of time. Compared to permanent life insurance, term life insurance is cheaper. However, term life insurance is worthless if the policyholder survives after the specified time on the contract.
Permanent Life Insurance
This type of life insurance is a lifetime contract. And since this policy has lifetime validity, this is more expensive than term life insurance. Types of life insurance include the following:
- Whole life insurance
- Universal life insurance
- Burial insurance
- Survivorship life insurance
How Does Term Life Insurance Work?
Term life insurance is both the cheapest and most popular life insurance. This type of insurance gives you the option to choose the duration of the contract, say 10, 20, 30 years. During this time, you’ll regularly pay the premiums.
In case you passed away within the term policy, the insurer will pay your beneficiaries the death benefit. If this is not the case, you can renew the policy every year, but each year you’re required to pay a higher premium.
How Does Permanent Life Insurance Work?
This insurance policy is more expensive than term life insurance policy since this covers you as long as you are alive, and as long as you pay the premiums. It doesn’t matter if you die after procuring your life insurance or after 75 years, the insurer will give your beneficiaries death benefit and cash value, an independent savings component.
Each time you pay for the premium, a part of it goes to the cash value, which increases at a certain rate depending on the policy chosen. You can cancel your policy and get the accumulated cash value, but this typically costs you a cancellation charge. Some policies even allow you to use the cash value to pay for premiums.
Who Should Buy Life Insurance?
Death is expensive. After your death, your spouse or children who used to depend on you financially will still have to find the means to pay for your burial and other expenses associated with your death.
In this situation, a life insurance policy is a huge help on the part of the relatives you will leave behind. If you don’t have relatives who depend on your income, and no one will be financially distressed regarding your death, then you might not need life insurance.
What Are the Benefits of Life Insurance?
Overall, every life insurance gives you the security that your beneficiaries will be fine financially even after you pass away. With a larger death benefit, your beneficiaries use the money for the following:
- A substitute source of income,
- Home mortgage payment,
- Car and student loan payment,
- Fund for your kid’s education,
- Contribution to charities,
- Payment for your aging parent’s needs, and
- Payment for federal taxes
Depending on the coverage amount, your family can enjoy the following benefits as well:
- The tax-free death benefit,
- The inheritance with less tax accountability, and
- Disability insurance, which can replace a part of your salary when you become jobless
Is Your Employer-Provided Life Insurance Coverage Enough?
Your employer can provide coverage for you without you worrying about paying the premiums because it is automatically deducted from your salary. However, to help you decide if employer-provided life insurance is indeed enough, here are some points you should consider:
Employer-Provided Life Insurance May Not Be Enough
Sure employer-provided life insurance is relatively cheaper; however, this may not be enough. Some experts suggest that your insurance policy can give your beneficiaries about eight to twelve times your yearly salary.
Employer-provided life insurance is not enough if you have a partner who is not working, children, other dependents like aging parents, and mortgage.
Yes, employer-provided life insurance can act as a replacement for your salary, but it cannot replace your other sources of income, commissions, medical insurance, retirement contributions, and even bonuses. Thus, the employer-provided insurance policy only gives you a false sense of security.
Declination of Health Can Cost Your Coverage
If you have to leave your job due to your state of health, you also lose your coverage at exactly the time when you need the money to take care of your needs and your dependent’s needs as well. Thus, some people choose to continue working at the cost of their health.
Employer Chose an Unreliable Insurance Company
Your employer may choose a low-rated company just because the premiums are cheaper. However, a low-rated insurance company is usually not reliable when your beneficiaries need the money.
Your Partner’s Life Insurance May Not Be Covered
Health insurance for your partner may be included in the policy, but there’s no assurance that life insurance will be included as well. And if your spouse passes away unexpectedly, you have to earn even more money than you’ll use to cover for child care expenses.
Losing Coverage When You Lose Your Job
Of course, if you are laid off, or you decided to change your job, you’ll lose your policy as well. Some group-policies allow you to convert your term policy into an individual one, but this will be more expensive. Also, you might not qualify for an individual policy if your state of health is not good.
Employer-Provided Policy Is Not the Cheapest Option
Employer-provided coverage is not the cheapest policy out there. Also, as you get older, the premiums become more expensive as well. If you inquire for more options, you’ll surely get policies for married couples that are worth your money.
How to Qualify for Life Insurance?
Applying for life insurance will require you to divulge some basic, personal, and health-related information and to take a medical exam. Some companies do not require you to take the exam, but they may offer lower coverage or give fewer benefits.
Take note that you have to tell the truth when giving your information to your chosen company since lying about your health may automatically cancel your policy or worse, they may even let other insurers know that you lied about your condition. A medical exam is usually done by a licensed healthcare professional hired by the insurance company. The exam will involve checking the following:
- Lifestyle habits
- Medical history (past surgeries, operations, etc.)
- Blood pressure
- Relative’s medical history
- Blood and urine sample
- EKG
- X-ray
- Treadmill test
If the company turned you down due to your medical issues such as cancer, heart disease, or due to the nature of your lifestyle and job, then find a company that will accept you or tries to make a deal with them. If they accept you, then start paying for a premium that you can afford to pay regularly.
How Much Life Insurance to Buy?
In considering how much life insurance you should buy, you should review the following:
- Expenses
- Debts and accountabilities
- Dependents
- College Fund
- Funeral and burial expenses
- Your health and age
Think of how much you would give your beneficiaries in the future if you were still alive, say 10 to 20 years from now. And make decisions from there.
What Are the Best Life Insurance Companies?
Below I listed some factors you should consider when choosing for an insurance company:
- Customer Satisfaction Scores
You can access this on the National Association of Insurance Commissioners’ website. Of course, previous and present customers of a specific company can give you an accurate opinion which might help you before making a decision.
- Financial Strength
A.M. Best can give you an insight into the company’s financial strength. Of course, you’d want a reliable company that can pay benefits a few or many years from now. I don’t recommend dealing with a company with a financial rating of B or lower.
- Price
You want a company that can offer an insurance policy that is worth your money. Try our platform CoverClan.com , we will shop with up to 50-100 companies and get you the best rate and coverage.
- Product Options
You want to have a variety of product options to maximize the premiums you’ll be regularly paying. You might also want to choose a company that is an expert on the type of policy you want. Some companies you might want to check to include Prudential, State-Farm, Transamerica, Northwestern Mutual, among others.
How to Get Life Insurance Without Talking to an Agent?
Staying at home is a must during this pandemic. However, if you’re required to constantly stay at home, then how can you apply for an insurance policy? CoverClan.com can help you with your dilemma!
We know how stressful it is to choose a company as well as the best insurance policy that fits your needs. So, we, at coverclan.com, offer you a quick and easy way to get your life insurance policy in these stressful times! Our trustworthy agents from CoverClan.com can help you shop for the best insurance rate and coverage. Just as your food and drinks can be delivered, your insurance can now be delivered as well! No need to fill out countless forms because we’ll do that for you! Contact us now, and we promised to give you a hassle-free experience plus, you can save time and money as well!