Buying Guide on Life Insurance
When buying life insurance, it’s all about weighing the pros and cons of the life insurance provider. And of course, how much life insurance do you need? While you can use a calculator to find out how much coverage you need, it is best to weigh your options by asking yourself some important questions.
Multiplying the annual salary by the number of years left until you retire is a good way to know how much term life insurance you need.
Here are some more questions that you will need to answer:
- What do I own?
- Do I need any additional coverage?
- What’s the amount of liability I can afford?
What Does Life Insurance Cover?
So, the first question that most people ask when it is time to choose insurance coverage is, “How does life insurance work?” Does life insurance cover accidental death? Does life insurance cover cancer?
Life insurance is a great way to help a person’s relations cope after one’s death. An insurance policy can help your family financially after your death, especially since your next of kin will not be able to rely on your income.
What does life insurance cover? The payout of the insurance policy can be used by the deceased individual’s family to pay off debts, the mortgage and cover tuition fees or everyday expenses. The payout is given to family members even if the policyholder died due to cancer, or another sickness since it is considered as a natural cause of death, or if an individual had an accidental death.
What Doesn’t Life Insurance Cover?
Another common question that most people considering buying life insurance have is, “What does life insurance not cover?” While a life insurance policy will cover most medical conditions and scenarios, there are also a few scenarios that the regular life insurance policy does cover.
Death due to sexually transmitted diseases such as aids or HIV, self-inflicted injuries, drug overdose, and taking part in hazardous activities are not usually covered unless covered by a rider. This is why it is so crucial for a person to find out all there is to know about the life insurance policy they are about to buy so that there are no surprises.
When it comes to getting a payout due to suicide, it depends on a case-by-case basis, and most insurance providers also have a ‘suicide clause’ in the agreement, which sets out where you wouldn’t be covered. The rules in this clause differ from company to company, which is why you need to do your homework before signing on the dotted line.
Types of Life Insurance Policies
There are also many types of life insurance available, which can make it harder for you to find what is the best life insurance is for your specific needs. The following are the different types of life insurance that you can choose from with brief explanations of their coverage:
- Permanent Life Insurance – Under this policy, if a person is still alive at the age of 100, premiums are no longer required, but the death benefit will still be distributed when the insured dies. As long as the premiums are paid, this policy offers lifetime coverage.
- Whole Life Insurance – Whole life insurance is a type of permanent life insurance in which as long as the premiums are paid on time, the person is covered for their lifetime.
- Universal Life Insurance – Under this policy, you pay a monthly fee that is split between one part that covers life insurance and another which goes into savings and investment. This way, the policyholder gets to choose the premium they pay.
- Indexed Universal Life Insurance – This is a type of permanent life insurance that has a cash value component along with the death benefit. That money in your cash amount can earn an interest based on the stock market index used by the insurance provider.
- Variable Life Insurance – This is a permanent life insurance policy that has an investment component. This gives it the potential to grow as the underlying investments in the policy’ sub-accounts grow.
- Term Life Insurance – As the name implies, term life insurance offers coverage for a certain period of time that’s specified in the policy.
- No-Exam Life Insurance – Under this policy, the person does not have to take a medical exam before they get approval. But, the payout will be withheld if the insurer finds out you withheld information on your health.
- Death Benefit- This is a payout that is made to the beneficiary of the policy once the insured person dies.
- Cash Value – This is the portion of the policy that earns an interest that could be made available for the insurer to withdraw or borrow in emergency situations.
Term vs Whole Life Insurance
A term life insurance is a pure insurance policy as compared to the whole life, which adds a cash value component that the policy owner can tap during their lifetime. While a term policy will only protect you for a limited number of years, a whole life policy will offer you life-long protection, just as long as the policy owner can make their premium payments on time.
How Does Life Insurance Work?
A life insurance policy is an agreement that an individual gets into with an insurance provider where the individual pays an amount that’s agreed upon by both parties, to the insurer. These payments may be made on a monthly or annual basis.
The life insurance policy will then pay out an amount to the policy holder’s next of kin after their death. In short, a life insurance policy provides financial assistance to the loved ones of the policyholder after they are deceased.
How No-Exam Life Insurance Works?
For the no-exam life insurance policies, an individual does not have to take a medical examination before getting approved. There are 3 main types of life insurance policies that do not require a medical exam.
The following are some key differences between them. So, if you’re considering a no-exam policy, be aware of the advantages and disadvantages of each type.
- Accelerated underwriting – The application process can be quick if no exam is required
- Simplified issue – The process is very simple here. You fill out a short questionnaire about your health. But, the coverage decision will be decided by the insurance provider.
- Guaranteed issue – require a medical exam or questions, and you can’t be turned down. This type of policy targets older individuals to help cover the cost of expenses such as burial, etc.
Reasons to Buy Life Insurance
So, what are the reasons to buy life insurance? Well, some of the top reasons to buy life insurance are that it helps your family once you’re gone, and can help you if you have been disabled. But, here are some more reasons to buy life insurance in your 50s.
- You’re having a baby
- You’re getting married
- You financially support aging parents
- You have debts
- High-risk job
- Extreme hobbies
- You are self-employed
How Are Rates Determined?
One important factor that determines which policy you select is the life insurance rates. Term life insurance rates vary depending on the insurance provider and also individual cases.
The same can be said for whole life insurance rates. But, if you really want to get the best life insurance rates, you will have to make sure you follow the requirements of the insurer.
When it comes to life insurance, the premium that the policyholder is expected to pay will depend on various factors such as the individual’s age, the sum assured, their medical history, lifestyle, gender, and even occupation.
All of these factors will be closely scrutinized by the insurance company before fixing your premium. In short, the premium will be based on the amount of risk you put the insurer through.
For instance, if you are a smoker, then your insurance premium will automatically go up. Even if you have an underlying medical condition, it can result in having to pay a higher premium. But, premiums are always decided on an individual basis by the insurance provider.
How Fast Can I Get Life Insurance?
Sometimes it happens that circumstances suggest we need to get life insurance very fast. But still, before you go to buy life insurance online, there are some things that you should know. For instance, how long will it take for you to get approval, and what are the options of fast life insurance policies?
For those who are in good health with no underlying medical conditions, the process can be quicker, depending on your insurance provider.
A waiting period is an initial period, during which no benefit is paid for certain procedures. This rule may also be applicable to additional benefits when you change (upgrade) your health insurance policy. In most life insurance policies, there is a waiting period of at least 24 months before they pay a death benefit.
What Are the Expected Costs of Life Insurance?
One of the reasons why many people do not opt for life insurance is because of the wrongly assumed heavy life insurance costs. It is important to note that life insurance does not have to be expensive. If you are wondering about what are the average life insurance costs per month, this should answer your question.
For a healthy person between the ages of 18 and 70, a life insurance policy will cost an average of $67.88 a month for a 20-year, $250,000 policy. You can get a free life insurance quote to find out the exact life insurance rate. The exact amount you’ll pay will come down to factors such as age, health, and lifestyle.
If you’re wondering “what’s the average life insurance cost by age,” then you can expect to pay between $24 to $26 a month if you’re 35 years of age. Between $34 and $40 a month if you’re 40 years of age, and between $48 and $61 a month if you’re 45 years old.
As you can see, the premium goes higher as you get older. That said, any age below 55 is a good age to get an insurance policy.
Tips to Reduce the Cost of Life Insurance?
The following are some of the things that you can do if you are looking to reduce the cost of your life insurance monthly payments.
- Adopt a healthier lifestyle
- Stop smoking
- Buy life insurance when you’re young
- Understand your needs
- Switch from permanent to term life insurance policy
How to Apply For Life Insurance?
Once you know your requirements and have decided on the type of insurance policy that will suit you best, it’s time to go ahead with the application process. Contrary to popular belief, there is nothing intimidating about filling a life insurance application.
All you will have to do is download the form from the insurance provider’s website or visit their office. You will then need to give truthful answers to all of the life insurance application questions. The life insurance application form will then be submitted to the insurance provider who will review your application.
It is important that you not leave any questions unanswered, and more importantly, try to avoid lying on the life insurance application. Some of the common questions that individuals have to answer include;
- Height
- Weight
- Date of birth
- Lifestyle habits (i.e., smoking, drinking, exercise)
- Financial information, including your annual income and net worth
If required, the applicant will also need to pass a life insurance exam, which is basically a medical exam to determine any underlying medical conditions that the insurance provider should be aware of.
How to Choose a Life Insurance Beneficiary?
Choosing a beneficiary for your life insurance policy is going to be a big deal, especially because this life insurance beneficiary is going to get the payment should you die. There are certain life insurance beneficiary rules provided by the insurer that need to be followed.
The best tips to choose a life insurance beneficiary are as follows:
- Determine who you would want the money to go to
- Find out your best options
- Consider the beneficiary’s circumstances
- Don’t forget to name a second beneficiary
- Review the policy
- Try to understand the policy terms and whether it will really be of use to the beneficiary
Normally, the policyholder can designate one or more of the following examples as a beneficiary:
- One person
- Two or more people
- The trustee of a trust you’ve established
- A non-profit or charity
- Your estate
It should be noted here that if you fail to name a beneficiary, your life insurance benefit will either go to your surviving spouse, or it will be added to your estate.
Is Paying for Life Insurance Worth It?
Paying for life insurance is worth it, provided you have signed up for the best life insurance policy that suits your needs. So, what are some of the whole life insurance pros and cons that you should be aware of? Let’s find out:
Whole Life Insurance Pros and Cons
| Pros | Cons |
| Permanency | Higher cost |
| Tax | Lower death benefit |
| Potential loan collateral | No investment control |
| Predictability |
Indexed Universal Life Insurance Pros and Cons
| Pros | Cons |
| Potential for higher returns | No guarantees |
| Flexibility | Cap on returns |
| Capital gains (tax-free) |
Universal Life Insurance Pros and Cons
| Pros | Cons |
| Better flexibility | No guaranteed level premium |
| Cash value grows at a variable interest rate | Variable rates |
| Opportunity to increase cash value | Positive cash value required |
