Life Insurance for Individuals
Looking for a life insurance policy as an individual can be a lot different than looking for one as a family. Here is what you need to know about your search for the perfect life insurance policy.
So, what is life insurance?
When you purchase a life insurance policy, you are signing up for something that will greatly benefit your family in the case of your death. You will make a payment every month, and the insurance company will make a lump-sum payment to your beneficiaries in the case of your death.
There are several different kinds of life insurance policies that you can purchase. You will want to choose a type of life insurance that will benefit you based upon your own personal needs.
For example, term life insurance provides protection only for a certain period of time, while permanent insurance gives coverage for a lifetime. You should also know that the death benefits from all types of life insurance are usually income tax-free.
What is term life insurance?
Term life insurance provides the beneficiaries with financial protection for a certain amount of time. This insurance could be for five, 10, or 20 years. The premium payment for this kind of insurance usually stays the same for the time period selected.
After that time period is over, you have the option of continuing with the policy, but it’s usually at a much higher rate. Term life insurance is cheaper than permanent life insurance because it’s not meant to last for a whole lifetime.
Do you need term life insurance?
Term life insurance is helpful if you want to replace lost potential income from your working years. The money will help your family be financially stable in the long term.
It’s important to think about your finances if you do have a family because you will have goals like paying off a mortgage, paying for college, or maybe even running a business. Life insurance benefits are paid to you in one lump sum, so if you pass away, your beneficiary will receive this money at one time.
What is universal life insurance?
Universal life insurance is one kind of permanent life insurance that you can purchase. With this kind of policy, you will get lifetime coverage. Universal life insurance policies can be changed, and usually, have a lower premium payment than permanent insurance but more than term insurance.
You can also change your coverage plan if you wish. This is the most lenient policy that you can buy, as most other policies don’t allow you to change your payments or coverage.
Do you need universal life insurance?
Universal life insurance is usually purchased and used to help preserve wealth to be transferred to beneficiaries. It can also be used to provide death benefit coverage and build cash value. Most universal life insurance policies provide guaranteed death benefit coverage, no matter what.
What is whole life insurance?
You will get lifetime coverage if you purchase whole life insurance. Unlike term life insurance, whole life has a cash value aspect.
The cash value can be used as savings and can accumulate tax-deferred over time. Whole life insurance policy premium payments are usually fixed and are higher than term insurance.
Do you need whole life insurance?
Whole life insurance is used as a tool to maintain the wealth given to your beneficiaries. Because it has cash value, it is different than other policies and can be very beneficial to you and your family.
How is cost determined?
Insurance companies take a lot into consideration when determining the cost of your premium payments. They look at your age, the number of people in your family, overall family health, medical history, and overall lifestyle. For example, if you smoke, that would increase your risk and would cause your premium payments to be higher than those of someone who doesn’t smoke.
How to determine what kind of coverage you need
Once you understand these common types of life insurance, the next thing to do is think about your personal life insurance needs. You will be choosing between term and different kinds of permanent coverage.
The first thing you will need to think about is whether or not you need permanent life insurance. If you want coverage for your whole life, then universal or whole life insurance will be the best option for you.
If you only want insurance for a specific period of time, then term life insurance will be the best bet for you. It is important to choose a policy that will meet your needs and the needs of your beneficiaries. It’s a good idea to discuss your life insurance with your spouse, because choosing a policy is a very important decision to make, and will affect everyone in your family.
Your coverage amount
The policy coverage amount is the amount of money paid to your beneficiaries in the case of your death. It is very important, and you will need to take a few things into consideration because deciding it.
You will need to think about your assets and liabilities, your income, and any existing insurance you may have. You should also consider any big expenses your family has.
Life Events Will Affect Life Insurance Decisions
Major events in your life are good factors to take into consideration when purchasing life insurance. For example, if you got married, had children, or if you bought a home or other large property.
Also, if you started a new job, started a business, or pay for your child’s college tuition. All of these life events make a difference in what kind of policy you purchase, and how much coverage you decide to get.
It is also important that you review your life insurance plan every year or so, to ensure that it is keeping up with your overall financial life plan. When it comes to buying life insurance, your personal situation will affect every choice you make. You will want to discuss your personal information with a life insurance agent, to ensure that you are making the right decisions.
A Few Things You Might Not Know
Now that we’ve covered the common types of life insurance and how to decide what kind of policy to buy, here are a few things you absolutely need to know about life insurance.
Life insurance does not add monetary value to an individual’s life
This is a common misconception about life insurance. Life insurance compensates for the unfortunate financial losses that occur when someone died. It helps those family members deal with financial expenses like debts, mortgage, and education.
But, more importantly, life insurance helps family members after a death when they are grieving, and can’t focus on monetary loss at the time. Life insurance also gives the policyholder peace of mind, because he or she knows that if an unfortunate situation happens, family members will be taken care of.
If you have family members that rely on you financially, you need life insurance
When you are the sole provider in the household, it’s extremely important that you purchase a life insurance policy to protect them in the case of your death. If you are a single person, life insurance is not something that you necessarily need.
There are four roles in a life insurance policy
The insurer, the owner, the insured, and the beneficiary are all key roles in the life insurance policy that you purchase. The insurer is the insurance company that is responsible for paying your claims in the case of death. The owner of the policy is the person responsible for making payments to the insurance company in exchange for the policy.
The insured is the person who needs the life insurance policy and whose life it is based upon. The beneficiary is the person or people who get the monetary value in the case of the insured’s death.
Did you know that life insurance is a contract
When you purchase life insurance, you are basically purchasing a contract. The difference between the premiums paid by the insured and the claims paid out by the insurance is the insurance company’s profit. In your contract, you pay monthly premiums and pay them in order to receive any claims in the case of your death.
Life insurance isn’t necessarily going to be expensive
Some people get discouraged about buying life insurance because they think it’s not affordable. If you are in your thirties and you don’t smoke, you will probably pay less than $500 per year for a long term policy with a million dollar death benefit.
This same person would probably have to pay a lot more for a whole life insurance policy, simply because of the length time of time that the policy covers. Someone who is older and who smokes would have to pay a lot more for either one of these policies. It definitely pays to begin a life insurance policy at a young age.
Life insurance is not an investment
Life insurance is a risk management tool. Although some life insurance policies do have investment features, insurance usually isn’t a convenient investment. If you’re trying to achieve some kind of financial gain, there are lots of other investment strategies that are more effective.
You only need to worry about insurance with investment components if you’ve done things like max out a 401(k) or Roth IRA, or paid off all non-mortgage debt. Otherwise, you should stick to regular life insurance policies.
Choosing your life insurance policy is actually really simple
Choosing a life insurance policy is overwhelming, and some can be intimidated when making the decision. But, there is really nothing to stress over. Life insurance companies can make things sound much more complicated than they really are.
As the policyholder, when planning your life insurance policy, all you actually need to do is make sure that the policy benefit matches your income for as long as your household needs it. So, if your family needs the income for a certain number of years, make sure the death benefit of your policy matches that amount. This will give you and your family peace of mind.
Talk to a life insurance agent
Life insurance agents are here to help you. Your personal life situation will always differ from someone else’s, and that’s why talking to an agent can help you understand what you need. Insurance agents are very knowledgeable and can help you save money by finding the best carrier for your specific goals and needs.
What happens if you need to cancel a policy?
If you have a life insurance policy that you don’t need any more, don’t cancel right away. You should never cancel an existing policy until your new policy is in place, especially if you have any health issues. For example, your new policy isn’t approved based upon your health problems.
Then, you are stuck with no life insurance! So, don’t make any sudden moves if you’re shopping for a new policy. Proceed carefully, and speak to a life insurance agent that can assist you.
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