Life Insurance Guide

life insurance

Your Guide to Finding and Purchasing Good Life Insurance

Planning for your end-of-life affairs is one of the most morbid tasks you may ever undertake. Not surprisingly, many people find it uncomfortable. Even so, life insurance remains one of the easiest, most accessible and most cost-effective ways to protect your family members and their finances if you pass away.

What Are the Benefits?

To better understand what the features are, you first need to identify its two main parts:

Term Life Insurance

Forbes explains that term life insurance covers an individual for a specific period of time. If the individual passes away during that time and remains current on premiums, the beneficiaries receive payment. One of the best benefits of term life insurance is that it is often more cost-effective. It also tends to be more accessible. Most employers provide affordable term policies. Self-employed individuals can also receive insurance through organizations they are a member of.

Permanent Life Insurance

Permanent life insurance operates more like a savings account that owners can add cash to and even borrow against. Unlike term life insurance, it never expires and the value of the deposits continues to grow until the person passes away. Permanent is more expensive, but it can help an individual to build equity and the policy receives favorable tax treatment. It can also form part of a tax planning and estate planning strategy.

Who Needs Life Insurance?

In the past, finance gurus only recommended these policies for people with dependents. However, many professionals now believe that even young, single people can benefit from owning them.

One reason for this is that millennials have lived through two recessions in less than 15 years and generation Z is living through at least its first. This contributes to these generations being less financially independent than prior ones. Consequently, they may not have enough assets to cover end-of-life expenses and families may have co-signed on many of their debts.

Business Insider also identifies people in the following positions as ideal candidates for purchasing a policy:

  • Possessing debt that co-signers or spouses may become responsible for
  • Pursuing a high-risk life based on career choices or extreme hobbies
  • Playing the role of the breadwinner in a family
  • Working as a self-employed individual
  • Financially supporting older family members
  • Starting or growing a family
  • Getting married

When Should You Purchase Life Insurance?

Most experts agree that the sooner you can purchase a policy, the better. Life is uncertain and there is no telling when anyone may arrive at the end of his or her journey. Arriving there without life insurance can present far too many avoidable challenges for family members.

Another reason to consider purchasing life insurance sooner rather than later is the financial aspect. Because younger people have fewer health concerns, insurance companies offer lower rates and may continue to offer lower rates for long-time customers versus new policy purchasers. When it comes to permanent life insurance, the longer individuals hold a policy, the more tax-deferred dollars they can save over time.

Examples

Technically, term policies are only used by the beneficiaries. For instance, let’s say someone purchases a 20-year policy with $1 million of coverage. During the first 10 years of owning the policy, the individual makes all payments in full and on time. The individual then suffers a serious car crash and succumbs to his or her injuries. The individual(s) listed as beneficiaries on the policy receive $1 million. These individuals can use the money for any purpose.

If you want access to your funds during your lifetime, there are several instances when a permanent policy can prove handy:

  • Funding college education
  • Providing capital for a business venture
  • Making a down payment on an owner-occupied home
  • Purchasing an investment property
  • Paying off unexpected, high-interest debt

Steps for Purchasing a policy

Before buying a policy, it is important to start with research. Consider your finances, family situation and expected future changes. Then, decide which policy type best suits your needs or whether you need both. After this, you can complete the following steps:

  1. Use your financial situation to determine how much coverage you need.
  2. Explore your options through work or on your own.
  3. Determine if you plan to purchase a policy for yourself, someone else or both.
  4. Decide who the beneficiaries are for each of your insurance policies.
  5. Collect the documentation you may need to fill out your paperwork.
  6. Complete the necessary paperwork honestly and accurately.

Quick Questions

What happens if you outlive your term life insurance?

If you do not pass away within the period you paid for term life insurance coverage, the insurance company keeps the money. This is why so many people choose permanent life insurance policies instead.

What are the three main types of permanent insurance?

You can purchase traditional whole life, variable universal and universal life insurance policies. All three of these categories also have additional variations to choose from.

What is not covered by life insurance policies?

Insurance companies generally do not cover deaths caused by engaging in hazardous activities or that result from self-harm. This includes drug overdose. Death caused by sexually transmitted diseases may also not be covered. Sometimes, a rider may cover some of these.

Purchasing a policy may not solve all your family’s financial struggles in your absence, but it offers a good start.