Paper family of four under a Life Insurance paper cutout umbrella
Although a lot of people are hesitant when it comes to life insurance, there are valid reasons to consider buying a life insurance policy. Life insurance guarantees that your loved ones have something to fall back on in the event of your death.
However, it is advisable for people to first compare different life insurance before buying or settling for one. Comparing life insurances before making a choice can save you a lot of stress and money.
Want to know more? Read on below for why you need to compare different life insurance and all you need to about life insurance.
What is Life Insurance?
Life insurance is a contract between an individual called the policyholder and an insurance company. In this contract, the policyholder decides to pay a certain amount regularly (premium) in return for the payment of a certain sum to the beneficiaries in the event of death.
The policyholder is usually open to choose whether to pay monthly, annually, bi-annually, quarterly or even pay at once.
Depending on the type of life insurance you choose and the contract, other factors such as terminal illness can also trigger payment to the beneficiary. The amount issued at the end of the contract to the recipients is called a death benefit and can be used to clear debts, make payments, arrange a funeral, pay school fees, etc.
Insurance companies usually make their profits from investing the premiums into profitable ventures and hope to make more profit than what they have to pay in return. In some cases, they also make a profit from policyholders who couldn’t continue with their payments. The investment company will then take over the funds paid until that time.
It is essential to let your beneficiaries know that your life insurance has their names as beneficiaries so that they can claim after your passing. Withdrawing death benefits shouldn’t be difficult once everything is in place. The beneficiaries will need to submit a life insurance claim, and once the insurance company verifies that everything is in order, payment should be made immediately.
agent selling life insurance to senior couple
Types of Life Insurance
There are two basic types of life insurance; they include term life insurance and whole life or permanent insurance. Most other types of life insurance fall between either these two categories in terms of duration.
Term Life Insurance
The primary feature of time life insurance is that it lasts for a specified period, which can be from 5-30 years. During this period, the policyholder is required to pay annual premiums. And if death happens within that period, a death benefit is issued out to the beneficiaries.
The insurance typically calculates the amount paid by the policyholder. The price is also dependent on the amount of the death benefit. Insurance companies arrive at this calculation by calculating the probability of death occurring during the specified time based on factors such as age, health status and risks, and other factors. So, the higher the chances of death occurring, the higher the premium and the death benefits that will eventually be paid out.
In instances where the policyholder lives beyond the specified time in the contract, the insurance company forfeits payment of death benefits. Once the contract expires without death, if the policyholder wants to maintain coverage, he or she will have to renew or buy a new insurance policy.
In a few cases, some insurance companies will opt to return the total amount of premium paid during the contract in a lump sum. This process is known as a return of premium policy, and it is more expensive than the typical term life insurance policy.
Whole Life Insurance
Whole life insurance exists for the policyholder’s whole life. It is a form of permanent life insurance policy, with no defined period of expiration. This type of insurance is more expensive because coverage does not expire, and payment of death benefit is guaranteed at the end of the day, as long as you don’t default premium payments.
Whole life insurance also provides other benefits such as cash value accumulation, a process through which an insurance company shares a certain percentage of the return of investment with policyholders.
Consequently, you will find a lot of caveats when dealing with whole life insurance. For instance, while you can borrow from your cash reserve, failure to pay back with the stipulated interest means deductions from your death benefits.
No Exam Life Insurance
No Exam life insurance is an exception to both term life and whole life insurances in the sense that while applicants have to write a medical to get the latter usually, the former does not require this. Best no exam Life insurance companies allow you to skip the exam, although it is usually one of the most expensive life insurance policies.
No exam life insurance policies are available in both term life and whole life options. It is best suited for people with severe health conditions such as cancer, and people struggling with substance abuse.
Benefits of Comparing Different Life Insurances
- Gives You Options: Comparing life insurance gives you the chance to explore all the options you have. You might never know which life insurance best complements your needs and finances if you sign the first one that comes your way.
When it comes to life assurance, there are a lot of options to choose from. Look for flexible options that can meet your unique needs. If you need help in deciding, consult a professional to help you determine the best policy.
It will also help to research and educate yourself about the different options available to save yourself time. So, take time, compare different life insurance available, their features, and how they fit into your plans before making a decision.
- Helps You Understand Your Needs: Comparing different life insurance also enables you to come to a better understanding of your insurance needs. For example, you may think you need a term life insurance, whereas what you need is whole life insurance,
If you are still in your thirties, the breadwinner of the family with young children, then a term life insurance will suit your needs better than whole life insurance. A term life insurance will significantly help your family cross financial hurdles such as a home mortgage, college fees, etc. if you die untimely.
It is also possible to change your term life insurance to whole life insurance if your needs change along the line. For instance, if you are considering building a cash portfolio for retirement or create a legacy for your loved ones when you have passed on.
However, if you are way above age 60, an elaborate term life insurance policy might not be the best option. For one, your children would have grown and probably move out of the house, which means your needs are different this time around. In such a case, you might want to look for either a small term life insurance policy that can cover for the remaining significant expenses you have before you die or a whole life policy that will cater to your spouse’s needs when you are gone.
- Helps You Choose the Best Life Insurance Policy: By comparing and evaluating your options and understanding your needs, you can buy the right life insurance policy. Making the right life insurance choice all comes down to your insurance needs and your financial goals.
If you want to buy life insurance and, at the same time pay off a mortgage, then a term life insurance is probably the sure bet. However, if you want something that is long term, and can cater to provide spousal support, then whole life insurance may be what you need.
Depending on your circumstances, you may require life insurance policies with unique features that cater to your individual needs. For instance, no medical exam insurance is ideal for people struggling with substance abuse or chronic health issues.
Whatever plan you decide to go for after comparing available life insurance policies, make sure it covers the length of coverage you need and offers your desired death benefit.
There are some variables to consider before taking a particular life insurance policy. They include health status, financial needs, age, age of children and spouse, current debts and mortgage, funeral plans, retirement plans, and your business goals.
Evaluating all the factors mentioned above can help you come to the right decision on what type of life insurance to buy.
- Help You Determine How Much Coverage You Need: So how much coverage do you need exactly, and how do you go about it?
There are many insurance companies out there and offering different types of policies. The only way to know what you need is to ask for quotes of varying life insurances so you can compare.
Quotes highlight the features of each type of life insurance; that way, you can get an estimate of the amount of coverage you need and also focus on the models that best fit your needs.
You may also need to estimate your debts, income, mortgage, saving, education fees, and pay to decide how much insurance you should buy that will conveniently cover your family expenses, in the case of your death.
- Gives You An Idea About the Cost: Cost is one of the significant determinants of the type of life insurance policy you eventually buy. Each insurance company has their prices or rates for different plans, so it will make sense to choose one that you can afford.
You will have to compare different life insurance policies to get an idea of how much each probably cost to make an informed decision on the best life insurance to buy.
However, before deciding to buy, make sure you understand the terms and all the fine print to avoid setting yourself up for hidden fees, charges, and caveats. Finding yourself paying for hidden costs before the end of your contract can ruin your life insurance goals.
The best way to avoid this is probably to ask the insurance company agent if there are any additional charges you should be aware, or do your research on the type of policy or just have a professional look it up.
Reasons Why You Need Life Insurance
Almost everyone needs life insurance, but very few people understand the need for it. Admittedly, it is easy to put off life insurance when you are young and without children. However, it is better to prevent a situation where you wish you had bought life insurance. On that note, here are five valid reasons why you need to get life insurance as soon as possible.
- Financial Security: One of the first thing life insurance provides is financial security in the event of death or fatal illness. Life insurance can help your family cope with their financial obligations if you suddenly die. That way, your family won’t be helpless, even if they had relied mostly on your income.
- To Secure Your Children’s Education: College tuition fees can be quite expensive, and getting a life insurance policy is one of the ways to plan and save up for it. Apart from personal savings, insurance pay-outs can considerably augment, especially when you are no longer around.
- Good Investment: Life insurance happens to be a good investment opportunity and can be worth trying, especially if you are looking to diversifying your investments.
Universal life policies are one of the best life insurance policy to take if you are hoping to use it as an investment tool because policyholders usually receive a return on investment based on how much profits the insurance companies make.
- Settle Debts and Loans: leaving your spouse to clear your debts is not the goodbye gift you want to leave after you are gone. If you share some liabilities with your spouse, life insurance death benefits can be used to clear such debts and other necessary financial responsibilities.
- Opportunity To Build Cash Value: Whole life insurance offers policyholders the opportunity to build cash value with their life insurance policy. The cash value can provide an alternative income that policyholders can access anytime, especially in case of emergencies.
Conclusion
Life insurance is something that everyone should have. However, with the numerous options policies, it may be a bit difficult to choose the best one that suits you and your family’s needs. Comparing the various life insurance options available can help you come to the right decision concerning the best life insurance policy for you.