Life insurance is a topic many people feel uncomfortable thinking about. That's because it only pays off after you pass away. Instead of thinking about that aspect of life insurance, you should focus instead on the benefit it can provide for the people you love.Â Life insurance offers protection for families when their loved ones pass-away.Â Most people forgo this as they believe it's too expensive.Â Luckily, life insurance is much less expensive than most realize.Â Don't leave your family and loved ones without a plan.Â Life insurance is affordable and thanks to new changes, it's cheaper than ever.Â Here's what you need to know.
Most people purchase life insurance to pay their family's living expenses after they pass away.
Many companies provide some level of life insurance protection for their employees. This is an important and valuable employee benefit. One thing to look out for, however, is the amount of coverage they provide. In most cases, it's not enough for your family to be able to pay their expenses and live as they are used to. That's why many people choose to purchase additional coverage on their own.
How much life insurance you need is a very personal decision and it depends on your income, expenses and family financial expectations. An insurance agent can help you determine how much protection you need.
In addition to providing replacement income for your family after you pass away, some forms of life insurance make easy and more efficient to transfer money to your heirs after you die. And some types let you use the money in the policy to pay your expenses in retirement.
There is also one other important aspect about life insurance. The death benefit from all types of life insurance is generally income tax-free. This can be a big plus for the people who receive the money from your life insurance after you die.
How it works
Life insurance is a complex product that can serve different financial needs.
At its most basic, a life insurance policy is a contract you make with an insurance company. In exchange for paying the insurance company money as premiums, the insurance company holds the premium money, invests it, and eventually pays your beneficiaries a one-time, lump-sum payment, known as a death benefit, after you die.
Types of life insurance
There are three types of insurance. Each offers different benefits, terms and cost structures.
Term life insurance is designed to provide financial protection for a specific and limited period of time, such as 10 or 20 years. With traditional term insurance, the premium payment amount stays the same for the coverage period you select and it will pay your beneficiaries a set amount of money if you pass away during the time you are covered by the policy. After that period, your insurance provider may offer you continued coverage. But be aware, this could come at a significant cost. Insurance companies often jack up rates significantly when they extend the terms of life insurance policies. Despite this, term life insurance is generally less expensive than other types of life insurance.
Whole life insurance is a type of permanent life insurance that provides lifetime coverage. Because of this extended coverage period, whole life policies usually require higher premium payments than term policies. Premium payments typically remain the same throughout the life of the policy. One key difference between whole life and term policies is that whole life has a cash value, which means you can access the cash held in the policy before you die. In addition to paying your beneficiary's expenses after you pass away, a whole life policy can be used as an estate planning tool that lets you more effectively transfer money to your beneficiaries.
Universal life insurance is very different from term life insurance. It's permanent life insurance designed to provide lifetime coverage. And unlike whole life insurance, universal life insurance policies are flexible and may allow you to raise or lower your premium payment or coverage amounts throughout your lifetime. The one negative is that universal life insurance typically comes with higher premium payments than term, and in most cases, whole life policies.
Universal life insurance is often used for different reasons than term or whole life insurance. Many people make it a part of their estate planning strategy as a way to transfer money to their beneficiaries. Others use it to provide income in retirement. Universal life insurance is a complex financial product that can be customized to fill many needs.
When you purchase a policy, you'll find that premiums can differ dramatically. Insurers use something called rate classes, or risk-related categories, to determine your premium payments.
Your rate class is determined by a number of factors, including overall health, family medical history and lifestyle. Smoking, for example, increases risk and cause a premium payment to be higher than that of someone who doesn't use tobacco. Depending on your policy type, you may be required to undergo a physical exam to determine your rates.
Always consult with an experienced agent to find the coverage thatâ€™s right for you at an affordable cost.