Part of having a sound financial plan is making sure that your family is taken care of in the event of your death. Life insurance is an invaluable tool that can keep your final costs from being a burden on your family after you are gone. Most people buy life insurance as a form of peace of mind to that regard. If you’re unsure of how life insurance works and you want more information before making a decision, read on to have your questions answered. There are quite a few different options when it comes to choosing a life insurance policy. If you’re unsure, an insurance broker can help you understand the differences between the many kinds of permanent life insurance or help you pick out a term life insurance policy that fits your needs and budget.
What Exactly is Life Insurance?
A life insurance policy is one that pays a sum of money to the policy’s beneficiary after the death of the policyholder. In short, it’s designed to help your family with your final costs and their futures. The policy value of life insurance you buy is dependent on many factors. Premiums are generally paid either monthly, quarterly, or annually for the length of the policy. While life insurance may seem like a thoroughly modern idea, there is evidence the practice has been in use since Ancient Rome. During that time, burial clubs were used that would pool money together to pay for its member’s funerals. Individual members would contribute a small amount to the fund, crowdsourcing an individual’s burial costs. It wasn’t until around the 17th century that the famous astronomer Edmond Halley came up with the formulas to calculate individual risk based on mortality statistics. These actuarial tables changed how life insurance worked by forcing higher risk individuals to pay more for coverage.
Several different factors affect how much a policy holder’s premiums may cost. Your age, sex, and pre-existing medical conditions can all result in higher or lower premium payments. The older you are, the more you will pay in monthly costs. Men also tend to spend more than women because they take riskier career options and generally have shorter lives than women. A family member can claim a life insurance policy using an official claim. The certificate of death will need to be provided along with original copies of the insurance policy. Life insurance claims can be denied if the deceased dies in a way that is not covered, such as suicide. Companies that suspect a claim may be fraudulent will conduct a thorough investigation.
Should I Buy Life Insurance?
Life insurance is designed to protect young, working families from financial disaster after the death of a loved one. The value in life insurance is protecting your family from the loss of your salary. Many term life insurance companies recommend a policy that will cover at least five years of your family’s expenses. Life insurance is also commonly used to help pay for expenses like your mortgage after your death. Some special life insurance policies are available that are tied directly to the outstanding balance on your mortgage. The lower your mortgage, the less you pay for that premium. Small business owners might also consider life insurance to help the business stay afloat in the event of their passing. These policies often name the business holder’s partner as the beneficiary to help maintain the business.
What’s the Difference Between Life Insurance Policies?
There are two major types of life insurance available. Term life insurance is the most basic, and it covers the policyholder for a set number of years. Term life insurance is the least expensive option because young people pay fixed rates for a fixed number of years. The downside to term life insurance is that your premiums will go up in the renewal process as you age. That’s where permanent life insurance comes in. A permanent life insurance policy is good from the day it is bought to the day the policyholder passes away. These policies can operate on a fixed or flexible premium, depending on the policy grantor.
Permanent life insurance is divided up into a few sub-categories itself. Whole life offers permanent life insurance with a fixed premium. Universal life allows funds to be moved from the insurance account and an attached savings account. Variable life insurance gives the policyholder the choice of where their funds are invested, affecting the cash value of the policy. Finally, universal variable life insurance offers flexibility on both fronts.