The pandemic has caused people to refocus their priorities, resulting in a double-digit increase in life insurance policies sold. Should you join them?
Suppose you find yourself falling into the category of people who are becoming more interested in life insurance. You may be wondering what kind of options and benefits life insurance can provide. Will the money you spend now make an impact long after you are gone?
Life insurance rates are based on personal information, age being one of the top factors in determining your rates. Life insurance rates by age vary but generally, the younger you are, the better premiums you will receive.
Women are expected to live longer than men, resulting in lower life insurance rates. Some other possible contributing factors are whether you smoke, the hobbies you tend to participate in, your personal health history, and your family’s health history.
Different Life Insurance Options Available
Life Insurance can be split into two major categories: whole life insurance and term life insurance. The significant difference between the two types is that one lasts for your entire life, and the other only lasts for as long as the term you select. But what option would better suit your needs? That depends on your age, your family, and your financial situation.
Whole Life Insurance
Whole life insurance is precisely what it sounds like, life insurance that covers you for your entire life. The amount of money that your policy coverage is for would be paid out to your beneficiary upon your death. These funds are generally federal tax income-free and are paid out in a lump sum. This is commonly referred to as a death benefit.
Whole life insurance has a few different payment options within the policy. You can choose to pay this policy amount in total over a shorter period, like 10 or 20 years. The premiums would be pretty high in this scenario because you are paying over a short amount of time.
The money you pay toward this policy has cash value and can grow over time. Having cash value allows you to borrow money from that policy if you find yourself in a pinch to do things like supplementing your income, providing education for your children or grandchildren, paying off your mortgage, and creating an emergency fund.
The borrowed money needs to be paid back before you die. Otherwise, those funds will be deducted from the total amount your family would receive. You will be paying interest on that loan, and the amount you can borrow is determined by a percentage of the full cash value available.
Whole life policies are considered permanent policies, meaning that policies can’t be canceled due to changes in health status. Your rates will not increase unless you stop paying your premiums.
The main disadvantage to whole life insurance is that the premiums are typically higher than term life insurance, but the reward can be more significant in the long run.
Term Life Insurance
Term life insurance provides temporary coverage for a predetermined period, usually between one and 30 years. This policy option is more straightforward to understand, and the policy can be canceled with ease.
Term life is the better option for you if you are on a strict budget as premiums are usually cheaper than whole life. When the policy term ends, there is an opportunity to renew.
Beware, though, that if you renew, your premiums will probably rise in price as you will be older, and your health status may have changed over that period.
Term life insurance carries no cash value, so you can’t borrow against it. For single individuals or couples with no dependents who are in overall good health, this is an excellent way to have coverage and save money on your rates.
How much coverage should I have?
Life insurance policies offer many different benefits. They are not one size fits all, and you may want to weigh the positives of each before deciding which would be the best decision for you.
Think about what financial burdens your family would endure if the primary breadwinner passed away. How long would you be able to pay your mortgage, car payment, or other bills?
Experts have said that most families would not have enough funds to continue paying bills past a year after the main financial contributor passes away. Life insurance can help you provide peace of mind to your family during life’s unexpected moments.
How much insurance you need will vary based on your circumstances; it is best to speak to a trusted professional or use a coverage calculator to help determine the amount that would suffice for your family. Many people opt for a 250K life insurance policy.
Typically, you should have between six and 10 times your annual income covered for your life insurance. Another way to help determine how much coverage you may want is to multiply your yearly earnings by the number of working years until retirement.
Life insurance money that your family receives will be federal income tax free. It can help provide your children with childcare and college tuition. The money could help save your family business or continue to make mortgage payments. These benefits you gain from being prepared are priceless.
Is life insurance provided through work enough coverage for my family?
While policies through work are usually little to no cost or accessible to the employee, these policies often do not cover enough and are term-type policies. The downfall to not purchasing an additional policy or coverage is that you will typically lose these benefits if your job situation changes.
Benefits can change depending on whether you are full-time or part-time. Coverage may change or end if you retire or get laid off. The future is unpredictable, which is why it is better to be as prepared as you possibly can be.
Will I have to take a health assessment to purchase life insurance?
If you don’t pose a high risk — which includes being younger, not having a preexisting condition, and striving to maximize your healthy habits — you are more likely not to take a health assessment, which is why it’s more cost effective to purchase while you are still young. This is most common for term life insurance policies.
More often than not, purchasing a whole life insurance policy will require a health assessment or medical exam to be taken. The classification and premium rates are primarily determined by your health history and current health status.
Purchasing a life insurance policy is a significant yet essential investment to make. Most people don’t sit around thinking about what life will be like after they die because life can be very unpredictable. You don’t want to have to worry about insurance only when you need it or have to find insurance when you don’t have a job.
The unknowns can cause anxiety, but by purchasing life insurance, you can provide your family with the gift of financial security even in your passing.
Kalyn Johnson writes and researches for the life insurance comparison site, QuickQuote.com. As a mother of four, Kalyn loves finding great deals on life insurance while still maintaining the best coverage for her family.