Why do I need life insurance?
Understanding life insurance and how to find the best policy can ease the intimidating process of shopping for coverage to protect your family’s needs. It is essential to know how life insurance works so you can decide what type of coverage you need, how much you need, and how it will fit into your long-term financial planning.
What Is Life Insurance?
Life insurance is a contract between you and an insurance company. In exchange for your premium payments, the life insurance company will pay a lump sum, known as a death benefit, to your beneficiaries after your death, if your policy is active. There may also be a cash value component if you have permanent life insurance. The best life insurance companies have good financial strength, a small number of customer complaints, high customer satisfaction, several policy types available, optional riders, and straightforward application processes.
Life Insurance words to know
Thinking about buying a life insurance policy? Here are some terms you should know before signing up for a life insurance policy.
- Cash value: The amount of money in a whole life policy that accumulates as you pay premiums. You can access it via loans or partial withdrawals for a variety of financial needs, like unexpected expenses or to pay for your child’s college tuition. This money grows tax deferred.
- Convertibility: A benefit provided by some carriers that allows you to upgrade from a temporary term life policy to a whole life policy if your life changes, without going through additional medical exams.
- Dividend: A share of the company’s divisible surplus paid to an eligible policyholder. A divisible surplus is the extra money a mutual company has after paying claims, paying expenses, and setting aside reserves for future claims and benefits. Dividends can help your cash value and coverage grow. They are not guaranteed.
- Beneficiary: The person or entity that receives the benefit amount upon the insured’s death.
- Rider: An add-on, available for purchase, that you can choose to incorporate into your policy to further customize coverage. Guarantees of the policy are based on the claims-paying ability of the issuer.
How does Life Insurance work?
Life insurance works by providing your beneficiaries with a death benefit payout if you die, but only if your policy is in force when you pass away. Meaning you have paid the required premiums while you are alive. The death benefit can be used for any purpose your beneficiaries choose.
Before purchasing a life insurance policy, the insurer will assess your required premiums. Numerous factors impact life insurance quotes, including:
- Age
- Gender
- Health and medical history
- Coverage amount you choose
- Type of life insurance (term life vs whole life)
The younger and healthier you are, the better your quotes will be. Comparing life insurance quotes with several reputable companies is a great way to start finding the best coverage for a fair price.
What Is the purpose of Life Insurance?
Life insurance is designed to provide financial protection and peace of mind. The top life insurance companies offer coverage options to ensure that your loved ones will be financially supported in the event of your death. Policyholders can feel secure knowing their family will not face financial hardship when they are gone.
What Is Life Insurance Used For?
Life insurance beneficiaries are free to use the money from the policy for any purpose they choose, often using it for:
- Paying for living expenses that were previously covered by the insured person’s income
- Paying off credit card bills, medical bills, mortgages, or car loan balances
- Paying for funeral and final expense costs
- Funding children’s college tuition and expenses
Many life insurance policies include living benefits, which allow you to access a portion of your death benefit while you are alive, but only under specific circumstances outlined in the policy.
- You are diagnosed with a terminal illness.
- You develop a chronic or critical illness.
You can use funds from living benefits to cover various expenses, including medical bills not covered by health insurance and mortgage payments. While there are no similarities between life insurance and health insurance, living benefits can help pay for healthcare costs.
What are the main types of Life Insurance?
Many types of life insurance are available to meet various consumer needs and preferences. When deciding on life insurance, it is important to consider the short- or long-term needs of the insured person or their family members. This includes choosing between temporary or permanent life insurance.
Term Life:
Term life insurance is designed to last a certain number of years, and then end. You choose the term when you take out the policy. Common terms are 10, 20, or 30 years. If you die during the coverage period and have a covered claim, your policy will pay benefits to your named beneficiaries. If you live past the selected period, the policy will expire.
Permanent Life Insurance:
Unlike term life insurance which expires after a set number of years, a permanent life insurance policy does not expire and will cover you for your whole life. Permanent life insurance policies remain active until you die unless you stop paying your premiums or surrender the policy.
Are you interested in Purchasing Life Insurance?
If you are interested in purchasing life insurance through ClaimLinx, we can help you shop for the best option. Contact our Agency Team via email at agencyadmin@claimlinx.com.
