by Amber Ramsey
“Buy life insurance policy or not?”…
Is this on your to-do list and you just don’t know the answer? Do you need to buy a life insurance policy?
If you were not around today, how would you provide financial protection to your family?
Nobody wants to sit around and think about dying…except maybe Barbie.
Unfortunately, many people do not buy life insurance because they believe they don’t qualify or it’s not affordable.
With this in mind, here are a few facts about life insurance coverage from us at Funds Savvy to help dispel any reservations you might have.
In this blog post, we will discuss what life insurance is, how much life insurance should cost and life insurance rates, as well as things to consider when deciding if you need a life insurance policy.
#1 Understand How Life Insurance Works
Life insurance works by providing your beneficiaries with a predetermined amount of money upon your death. In the case of a term life policy, if you survive past the term, no benefit is paid out.
If the policyholder dies within the term, however, the death benefit is paid to the beneficiaries.
It’s like a warm blanket of security and stability, providing a comforting presence in an uncertain world.
It whispers, “Go ahead, buy those shoes. You can afford it.”
And most importantly, it’s there for you when life tosses curveballs your way, like a trusty old pal who’s always got your back.
What Happens if You Don’t Have Life Insurance?
There is a price to pay for not having life insurance. First, is a funeral, which averages $7,000 to $10,000.
If you plan on paying for your children’s college, the loss of your income might even keep them from attaining their higher education goals, or ultimately impact a surviving spouse’s financial comfort in retirement.
This expense can leave your family members struggling to keep up with the mortgage. If you’re concerned about your family’s ability to keep up with amortized payments, a term life insurance policy can be used to cover mortgage costs for your family should something happen to you.
#2 Life Insurance is More Affordable Than You Think
Generally speaking, many people overestimate how much life insurance costs.
That’s not to say the life insurance cost is always exceedingly cheap. Of course, some policies do cost more than others.
For the most part, however, term life policies are the most affordable.
Approximate Cost of Life Insurance
The cost of life insurance varies widely, depending on several factors. These include the type of the policy, the coverage amount, the term length, and personal factors like your age, health condition, and lifestyle choices such as smoking.
For example, according to Policygenius, a healthy 30-year-old woman can get a 20-year term life insurance policy with a death benefit of $500,000 for about $20 to $30 per month.
On the other hand, a whole life insurance policy for the same person could cost upwards of $150 to $200 per month.
Moreover, rates increase as you age. For instance, the same term life policy would cost a healthy 50-year-old woman around $50 to $60 per month.
These numbers provide a rough estimate and actual rates can vary depending on the insurance provider and the aforementioned personal factors.
It’s always best to get multiple quotes and consult with an insurance advisor to understand the precise costs and benefits.
#3 Understand Term Life Policies
A term life insurance is a policy that provides coverage for a specified term or period. This could range from 10 to 30 years, depending on the policy chosen.
If the policyholder passes away during this term, the death benefit is paid out to the beneficiaries.
However, if the policyholder outlives the term, no benefits are paid out, and the policy expires. The policy could be renewed or converted into permanent insurance at the end of the term, based on the terms and conditions of the policy.
Term life policies stand out for their affordability and simplicity, making them a popular choice for those seeking coverage for a specific period.
#4 Explore Other Types of Life Insurance
Besides term life insurance, there are other types of life insurance policies worth considering, depending on your unique needs and circumstances.
Whole Life Insurance
Whole life insurance is a form of permanent life insurance that provides lifelong coverage. In addition to providing a death benefit, this policy also has a cash value component that grows over time.
Premiums for whole life insurance are typically higher than term life insurance, reflecting the lifetime coverage and cash value benefit.’
Universal Life Insurance
Universal life insurance is another form of permanent life insurance with a cash value component.
What sets it apart is its flexibility – policyholders may adjust their premium and death benefit amounts over time, based on their changing needs and circumstances.
Variable Life Insurance
Variable life insurance, also a permanent policy, allows policyholders to invest the cash value component into various investment options, such as mutual funds.
This offers a potentially higher rate of return, but comes with a higher risk as the policy value is tied to the performance of the investments.
Final Expense Insurance
Final expense insurance, also known as burial or funeral insurance, is specifically designed to cover end-of-life expenses.
With lower coverage amounts, these policies are typically easier to qualify for, making them a viable option for older individuals or those with significant health issues.
Each type of life insurance caters to different needs and financial situations, so it’s crucial to weigh the options carefully and make an informed decision that aligns with your personal goals and situation.
#5 Understand Life Insurance Premiums and Policies
Life Insurance Premiums
Life insurance premiums—the regular payments you make to maintain your policy—can vary widely depending on several factors. These include the type of insurance policy, your age, lifestyle habits such as smoking, and your overall health condition.
Term Life Insurance Policies
Term life insurance policies, which offer coverage for a specified ‘term’ or period of time, are generally more affordable. The reason for this is that the insurer is taking on less risk, as the policy does not guarantee a payout.
When shopping for life insurance, you may face a choice between whole life and term life policies.
There are tradeoffs for each choice, but most financial advisors recommend term life insurance policies.
This more cost-effective option can protect your young family in the event of your death, but it expires after a term of years, ideally once your children are grown and out of the house.
#6 Medical Exams Aren’t Always Required
If you have a medical history including a medical condition, you might believe that you won’t qualify for insurance at all.
Thankfully, as Haven Life explains, there are a few different life insurance products you can buy with no medical exam.
One of these is simplified life insurance, which does ask for a medical questionnaire so the underwriter has basic information upon which to make a decision.
This type of insurance policy is ideal if you don’t want an exam.
A Medically Underwritten Policy
Another option is a medically underwritten policy, which is a good choice when you need more than $500,000. These often do require a medical exam, but, based on your health history and a lifestyle questionnaire, some applicants can skip this part of the process.
When your needs are less than $50,000, a guaranteed issue life insurance policy is an affordable choice.
For this no-exam policy, you’ll probably pay more, and your beneficiaries may have to wait a few years before receiving a full death benefit.
#7 Single People May Need Life Insurance, Too
Another common excuse for not buying life insurance is being single with no children.
Unfortunately, somebody is still responsible for your expenses. If you die without a will, your closest kin will have to go through probate, and that can keep them from inheriting your money to pay for your funeral for several months.
A life insurance policy, however, has to have a beneficiary. This means it does not have to go through probate, and your family won’t have to come out of pocket for interment costs.
Furthermore, if you choose the right policy, you can use accelerated benefits to help pay for medical expenses if you wind up with a terminal illness or life-changing injury.
#8 Know Where to Look For Life Insurance
Start With Your Employer
Many employers offer life insurance as part of their benefits package, typically as a group life insurance policy.
In most cases, the employer covers the cost or a portion of the cost, making it an affordable option for many individuals.
This can be a great way to get some coverage without having to go through the process of buying a policy on your own.
Employer-Sponsored Life Insurance
The coverage amount is usually determined as a multiple of your salary, such as one or two times your annual income. It’s important to note, however, that employer-sponsored life insurance may not be sufficient for your needs, particularly if you have dependents or significant financial obligations.
If you leave your job, you may also lose your coverage, so it’s recommended to have a personal policy in addition to the one provided by your employer.
Remember to review the terms and details of your employer-sponsored life insurance policy to understand exactly what it offers.
You may have the option to purchase additional coverage at your own expense if you feel the need for more protection.
Other Life Insurance Sources
Life insurance can be purchased from a variety of sources. Insurance brokerage companies, online insurance providers, and individual insurance agents are some of the most common places where you can buy life insurance.
Large insurance companies, such as New York Life or State Farm, offer a variety of policy options and have a strong history of customer support and claim fulfillment.
Today, many online-first insurers, like Haven Life or Policygenius, provide an easy and efficient way to compare and buy policies directly online.
Do Your Own Research & Talk to People You Trust
When looking for life insurance, start by conducting online research to understand the types of policies available and the companies that offer them.
Remember, it’s important to get quotes from multiple providers to ensure you’re getting the best possible rate.
It is also advisable to seek the advice of a financial advisor or insurance professional, who can provide personalized guidance based on your specific needs and circumstances.
Free Life Insurance Resources
There are numerous free resources available online to help you understand, choose, and manage your life insurance policy. Here’s a short list to get you started:
- Life Insurance Information and Policy Locator (NAIC): The National Association of Insurance Commissioners provides a free tool to help you find a policy in case your loved one has passed away and you are unsure if they had a life insurance policy.
- Life Happens: A nonprofit organization, Life Happens offers unbiased information, tools, and resources to help consumers make educated decisions about life insurance and other related topics.
- Consumer Reports: An independent organization that provides ratings, reviews, and buying advice about life insurance policies.
- Insurance Information Institute (III): The III offers comprehensive information on various types of insurance, including life insurance, and provides answers to frequently asked questions.
- State Department of Insurance Websites: Almost every state’s Department of Insurance has a website with free resources about life insurance.
Remember, these resources provide general information, and it’s crucial to consult with a financial advisor or insurance professional for advice tailored to your specific situation.
#8 Get The Policy You Need
Now that you know more about life insurance and what it can do for you, take the time to find a policy that works with your budget and your other financial goals.
Remember, it’s best to shop around and compare life insurance quotes from different providers. That way, you’ll get a better understanding of what you can expect to pay and find a policy that fits within your budget.
It’s also essential to regularly review your policy and make any necessary adjustments as your life circumstances evolve.
Most people could definitely use life insurance. Learning how to distinguish myths from reality can help you make a better decision about your finances.
You might not be around to use the funds, but your loved ones will thank you.
Having life insurance indeed provides a comforting sense of peace and security. It assures you that, in the event of an unforeseen circumstance, your loved ones’ financial needs will be taken care of.
The assurance of having your family’s financial future safeguarded can significantly reduce stress.
In addition to covering final expenses, life insurance can help to replace lost income, pay off debts, and even fund your children’s education. Knowing that these crucial aspects are covered can offer a profound sense of peace, allowing you to focus on living your life to the fullest. Regardless of what life throws your way, life insurance serves as a financial safety net for your family, ensuring their stability and security.
In this blog post, we covered eight things you should consider when deciding whether or not to buy life insurance.
We hope you feel more informed about life insurance faqs and what your life insurance options are.