Life Insurance: All You need to know

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Life is a precious gift given to us. So, start securing your families even after you pass away. One of the best ways is life insurance because it might pay a lump sum amount or a source of income to your family after death.

Before discussing any further, first, start with what is life insurance.

What is Life Insurance?

Life insurance is a contract or agreement between the insurance policyholder and the company, in which the latter provides insurance where the policyholder needs to pay an amount in the form of a premium for a certain amount of time. After the insurance policyholder’s death, their nominee receives a certain amount of funds or gets it in a periodic form as per the policy.

Life Insurance Types

Today, you will find many types of life insurance in the market. These insurances encompass different requirements and preferences of any individual. Basically, there are two types of life insurance– permanent life insurance and term life insurance. Whether you are looking for short-term insurance coverage or planning a long-term one, it is crucial to know about these a bit.

Permanent Life Insurance 

This life insurance offers lifetime coverage but is more expensive than the term life insurance. The reason behind its higher cost is that it has got its perks. It provides lifelong cover plus builds cash value. Another reason for being expensive is that it may have hidden policy costs.  

Cash value builds as time progresses, and it is tax-deferred. This is an advantage not present in term insurance. You can say it’s a saving component of the policy. You can withdraw this savings or even lend against this policy’s cash. Apart from these, if you terminate the policy, you will receive the policy cash. However, you will get this cash after deducting the policy surrender charges. 

But you should note that in some policies, the cash doesn’t build up very fast. So, don’t expect to have a lot of policy cash.

Permanent life insurance also has sub-types. These are:

  1. Whole life insurance: This permanent life insurance gives you fixed death benefits and policy cash at a guaranteed rate of growth. Some of these give away dividends which reduce the premium payments or act as cash value.
  2. Universal life insurance: This type offers flexible premium rates and death benefits within a certain range of values. This feature is not present in the whole life insurance policies. Speaking of cash values, it will grow according to the policy you have chosen. 
  3. Survivorship life insurance: Married couples usually choose this policy type as it offers coverage to two people under one policy. Upon the death of both partners, the death benefit is given to the beneficiaries. Very often, this policy provides a way to fund a trust or bear federal estate taxes.
  4. Indexed universal life: In this policy type, the policyholder enjoys a fixed or equity-indexed rate of return on the policy cash value.
  5. Variable universal life: Here policyholders can invest the policy cash in another account. Also, the premiums are flexible with increasing death benefits. 
  6. Burial insurance: As its name suggests, it offers to cover funeral costs and any other related final expenses. Plus, it comes with a small death benefit from $5000 to $25000.

Term life insurance

Unlike permanent life insurance, this life insurance is relatively less expensive. A popular choice as a life insurance, term life insurance offers an affordable option to most people. It has a fixed duration of coverage and only provides death benefits if the policyholder dies before the expiration of the term. You have to pay the premium timely in order to enjoy this life insurance coverage

As discussed earlier this life insurance doesn’t have cash value, hence the cheaper cost. Once the term expires, you are no longer under the coverage. You can renew the life insurance in increments of one year but the higher charges. This is known as guaranteed renewability.

How to buy a life insurance policy?

With so many options out there, choosing the right policy might be overwhelming. But don’t worry! We have listed down the steps that will make it a bit easier to find the right one for you.

Here are the steps that you can take as a reference. Also, there are a few pointers to remember while buying a life insurance policy:

  1. First of all, we find out what coverage expectations we want from the life insurance we are going to buy.
  2. Picking a type of life insurance between term and permanent according to our needs and age.
  3. Doing research and finding the insurance company or the policy which are most suitable for our desired needs. 
  4. Next step after researching and selecting the companies and policies we need to enquire about them manually for more clarifications.
  5. After the clarification, we can meet the agent or associates face to face so we can explain to them our requirements and expectations. Also, get more information with transparency of the policy.
  6. Then, after all this clarification and selection we can proceed to apply for the policy and read all the related documents and rules of the policy we have opted for applying.
  7. The last step is approval of the life insurance policy from the insurance company.

How to choose a beneficiary?

A beneficiary is a person to whom you want to transfer the death benefit after you pass away. Or, in other words, a beneficiary can claim the death benefit. 

You can add multiple beneficiaries having different shares of the death benefit. In fact, you can even add contingent beneficiaries. These beneficiaries will receive the death benefit if the primary beneficiary dies.

Apart from selecting your beneficiaries, you should update your beneficiaries regularly. This is crucial in case of divorce or marriage.  

Factors affecting Life insurance

Many factors may affect your life insurance policy premiums. These are: 

  • How old are you?
  • What is your gender?
  • Smoking habits(it increases the premium amount)
  • Your health(is it good or bad?)
  • Lifestyle(risky activities increase premium)
  • Driving record(Good record means lesser premium)
  • Any kind of family history of illness

Conclusion

Life insurance provides financial security to the policyholder and instills a sense of peace. You don’t have to worry about your loved ones if you are no longer with them. All you need to do is choose an appropriate policy that fulfills all your needs. 

However, the underlying processes can be a bit hectic. If you’re in United States, Exceed Insurance can make it hassle-free and easier for you with its seamless customized life insurance plans and experts. Get in touch with us for more details!

FAQs

  • What is Life Insurance

It is a contract between a policyholder and a life insurance company in exchange for the insurance policyholder paying funds in the form of a premium for a certain amount of time.

  • Is it a waste of money if I don’t die? 

In the case of term life insurance, if a person doesn’t die in the term period, the insurer doesn’t owe anything to the policyholder.  But life insurance provides valuable financial security to the policyholders and their families. Unlike term life insurance, permanent life insurance offers policy cash.

  • How much life cover do I need? 

Ideal life cover should be 10 to 15 times our annual income.

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