Life insurance provides financial security to your loved ones during your death. Some policies also accumulate cash value. For more information, Click Here to proceed.
Assess your family’s annual expenses, debts, and other financial goals to determine how much life insurance coverage you need. It would help if you also considered naming contingent beneficiaries.
A life insurance policy is an agreement between you and the insurer in which the former promises to pay your nominee a specified sum upon your death. The policyholder pays a premium at regular intervals for the policy term to get this financial protection.
To qualify for a life insurance policy, the applicant undergoes a process called underwriting, during which they are asked a series of questions, and the responses are evaluated (except in the case of group policies). Applicants with a history of smoking, high blood pressure, or other health-related issues can be rated and may not be eligible for coverage.
The payout amount, known as the ‘sum assured’, depends on your age and other factors like your lifestyle and family history. The insurer also determines the risk involved in giving you a policy by using mortality tables and your answers to the underwriting questionnaire.
Many insurance companies offer special life policies for seniors. These are usually whole-life policies with low face values and can help you manage funeral costs or other expenses after your death. These plans are popularly called final expense, burial, or end-of-life insurance.
Some life policies have a cash value component that grows tax-free over time. Cash value is usually a fraction of the total face value of the policy, and you can choose to withdraw or borrow from it. However, withdrawals and borrowings are subject to income taxes, and you may be required to pay a penalty for early withdrawal.
The different types of life insurance provide consumers with options to meet their individual needs and budgets. These policies can protect loved ones financially or help with estate planning and retirement goals.
A beneficiary is the person who will receive the proceeds from a life insurance policy at the death of the insured. A beneficiary can be an individual, a family member, a business associate, or a charitable organization. Policyholders can designate multiple beneficiaries and change their selection at any time. Beneficiaries can also be revocable or irrevocable.
An underwriter is a person who reviews an application for life insurance and decides if the applicant qualifies for coverage and at what premium rate. The underwriter uses information in the application, including medical records, to make this decision.
Term life insurance is a type of permanent life insurance that provides a fixed death benefit and policy face amount for a specified period, usually 10 or 30 years. The face amount is the sum of all payments made under a policy, less any outstanding loan amounts and interest charged on those loans. The face amount is typically guaranteed to remain level over the contract term, regardless of the insured’s health status.
Whole life insurance, universal life insurance, and indexed universal life insurance are types of permanent life insurance that accumulate a cash value and can be used as an investment vehicle. These policies have higher premiums than term life insurance.
The premium is the amount you pay to keep a life insurance policy active. It’s typically paid monthly or annually. If you stop paying your premium, the policy will lapse, and the death benefit will not be paid to your beneficiaries. Your life insurance premium is based on several unique factors for you and the insurer. Each company’s underwriters use their evaluation process to assess your risk and determine the price of your coverage.
Age is one of the most important factors determining your life insurance premium. The younger you are when you buy a policy, the lower your premium will be. The reason is that actuarial data shows that younger people have a greater chance of living longer, so the insurance companies set their policies at lower rates to account for this.
Your health is another key factor influencing your premium. For example, smokers are likely to pay more than non-smokers because of a higher likelihood of dying earlier. Other medical conditions and family history can also impact your life insurance rates. Your occupation may also be a factor. Certain jobs involving more danger, such as police officers or pilots, may have higher life insurance rates than other professions.
Other important variables influencing your life insurance premium include how long you want your coverage to last and whether it has a cash value component. Most term life policies have a set duration, while permanent life insurance lasts your lifetime and includes a cash value component that you can access during your lifetime. Those features typically make permanent policies more expensive than term policies. Finally, your life insurance rates can vary based on the type of riders you add to your policy.
Several riders are available that can add value to life insurance policies. However, most costs are extra and should be carefully evaluated to determine if they fit your needs and budget.
Some riders can also provide benefits while you are still alive, which can be a great feature for people with terminal illnesses. For example, a terminal illness rider allows policyholders to access a portion of their death benefit early, which can help pay for home health care or services at a long-term care facility. This is sometimes included with a permanent life insurance policy at no additional cost.
Other riders include a premium waiver rider, enabling you to continue your coverage without paying the full policy’s premium if you become disabled (the definition of disability varies among insurers). This is typically available with permanent life insurance policies.
A cost of living rider can adjust your policy’s death benefit to align with inflation and other costs over time, which can be a good option for those who want to ensure their beneficiaries receive a sufficient amount. A spousal/two-party rider pays out if the policyholder dies before their spouse, which can be helpful for those who wish to provide financial support to their children or other beneficiaries.
It’s important to get guidance from a financial professional who understands the ins and outs of life insurance and can walk you through your options. They can let you know what riders are available and evaluate whether they will help you meet your goals and can quote rider costs based on your projected health classification. Contact a Policygenius advisor here to get started.
Generally, life insurance pays a death benefit to beneficiaries when the insured (person who owns the policy) dies. The payment is a lump sum that is paid out tax-free. The money can be used to pay a mortgage, cover college tuition, or fund retirement. The type of life insurance purchased depends on the individual’s needs and circumstances. It is important to assess the financial responsibilities and obligations of a person’s family or business so that they can purchase adequate coverage without over-insuring.
A permanent life insurance policy also offers a cash value component that the policyholder can withdraw, invest, or borrow against at certain times. This feature makes it a more flexible option than a term life insurance policy, which has a set duration and builds no cash value.
The cash value portion of a whole life insurance policy is determined by the premium paid, the current interest rate, and the insurer’s mortality and expense experience. Some whole-life policies allow the policyholder to access some of this accumulation for special expenditures, but this reduces the available cash surrender value and death benefit. Some whole-life policies also offer dividends, which can lower the premium or purchase additional coverage.
Some whole life insurance policies come with riders, which provide additional benefits such as disability waiver of premium and accelerated death benefit. These rider provisions are typically available on an optional basis, meaning the insurer may add them to a standard life insurance policy or charge an extra fee.