Do You Have Life Insurance?
Not many people relish thinking about the inevitability of death. Death often comes unannounced and brings with it a host of changes. The situation is even worse if the deceased is the principal earning member of the household.
In this situation, the turmoil and the uncertainty that confront the bereaved can be too terrible to contemplate. The loss of a loved one is bad enough. When that results in financial uncertainty, the situation becomes even drier. This is why it pays to purchase life insurance. InsuranceQuotes.com, a leading provider of insurance quotes online, estimates that about 40 percent of US adults do not have life insurance.
What is Life Insurance?
At its core, a life insurance is a policy or a contract between the insured (you) and the insurer (the insurance company). The insured agrees to make payments on a regular basis (premiums) in exchange for receiving death benefits from the insurance provider. The insurance provider will pay the death benefit to the beneficiary mentioned in the policy. The death benefit includes a lump sum payment that typically covers funeral costs and other expenses.
Life insurance aims at giving the insured peace of mind. It provides satisfaction and assurance to the insured. By purchasing a life cover, the insured protects any dependents and loved ones from financial hardships.
What are the Different Kinds of Life Insurance Policies?
Not all life insurance policies are the same. Some policies could focus on building up cash value, while others only provide life cover. The most commonly found life insurance policies include:
- Term Life Insurance policies: These policies provide cover for a specified duration i.e. 10, 15 or 20 years. If the insured dies while the policy is in force, the insurer pays the face value of the policy to the named beneficiary. In case the insured outlast the term of the policy, the insured receives no benefit from the insurer.
- Whole Life Insurance policies: These policies provide a lifetime of cover. The premiums remain uniform over the life of the policy. In addition, they accumulate a tax-deferred cash value based on a minimum guaranteed rate of interest. As a result, the cash value effectively functions like a savings account. This is the most expensive life insurance product available.
- Universal Life Insurance policies: These policies treat the death benefit and the investment portions separately. The investment portions will typically include some equity investments that will increase the cash value of the policy at a faster rate. These policies offer greater levels of flexibility as compared to whole life policies. The insured can reduce or increase the cover, the cash value or the premium over the life of the policy.
What Aspects Do You Need to Consider When Purchasing a Life Insurance Policy?
There are several life insurance companies, with each offering a wide range of products. It might be tempting to purchase cheap life insurance. However, it is worth noting that cheap life insurance might not necessarily give you the best value for your money. Therefore, avoid evaluating policies merely based on their premiums. Instead, purchase life cover based on your family’s financial health and requirements.
To find a policy that meets your requirements perfectly, consider the following factors:
- Your Financial Position: Assess whether your family can cope with the loss of a regular source of income. If not, then you need life insurance.
- The Insurance Company: Look for insurance companies that have an A- rating and above i.e. A, A+ and A++. Rating agencies such as AM Best, S&P, Weiss and Moody’s issue these ratings based on the financial stability of the company.
- The Policy Type: For people with temporary needs, term life policies offer the greatest coverage for the lowest initial premium. Opt for permanent insurance if you need lifelong protection along with an accumulated cash value.
- The Amount of Cover: Review your household assets and earnings in the event of your death. Review your current and future financial obligations. The difference of these two parameters is the amount of cover you require. As a rough guide, consider purchasing a cover that is five to 10 times your annual income.
- The Duration of Cover: Insurance requirements tend to vary by age. Therefore, if you’re young, you might need a longer policy term.
- The Beneficiary: Avoid making your death benefit a financial windfall for an undeserving individual. Instead, ensure that your beneficiary is someone directly affected by your death i.e. your spouse, kids or dependent parents.
Therefore, do your homework and invest in the policy that best meets your requirements. Merely having life insurance is not enough. Ensure that you go through the policy document and understand all the terms and conditions perfectly as well.
The irony of purchasing life insurance lies in the fact that in many cases, the policy you purchase will have no impact on you in the event of your death. However, it could have a significant effect on the lives of your loved ones. That too when you’re no longer around. Therefore, resist the urge to purchase cheap life insurance and get cover that keeps your family financially secure.
You can also plan ahead and invest some of your income. There are many different ways to invest but one of the simplest and profitable ways is the financial markets or the stock market as we all know it.
That being said, you will need to know some basics and the fundamentals of the stock market before you begin investing. You can do that with one of our leading interactive online courses which will help you learn the Stock Market Basics and will eventually pave the way for you to build a very profitable portfolio.