Life insurance can get a bad wrap. Because the duration of the policy is (hopefully!) much longer than other types of insurance, it can be daunting to purchase. Thinking about a death in your family can be unpleasant, you may think the coverage is expensive and you may not know where to start. Despite all of these obstacles, life insurance can provide your family valuable and important coverage that is worth thinking about.
What is Life Insurance?
According to AccuQuote, life insurance is defined as:
A life insurance policy is a contract with an insurance company. In exchange for paying premiums on a policy, the insurance company provides a lump-sum payment (far in excess of what you paid in), known as a death benefit, to beneficiaries upon the insured’s death.
It doesn’t sound so complicated, but there are many important details to consider when choosing life insurance for your family.Planning for something as terrible as leaving your family behind can feel overwhelming. However, having a thoughtful plan in place could mean the difference between your family taking time to grieve or scrambling to figure out how to financially carry on without your income.
Why Life Insurance
Life insurance gives you a plan to help your family carry on if you were to lose income or support that would be expensive to outsource. This important coverage can offer your family crucial financial help if you or a loved were to die unexpectedly. By being thoughtful about your policy limits, a life insurance policy could provide much more than your family may have been able to save over the same time period.
Life insurance is so valuable because it serves as a vehicle through which your family can maintain its standard of living in the case of the loss of a loved one. The money from a life insurance policy can help your family handle funeral expenses as well as keep up mortgage payments, tuition payments or help your family afford childcare or extra help around the house if suddenly one of the providers in your family were gone.
Losing an income or a primary caregiver can be financially devastating for some families. Life insurance can help them get back on their feet after a loss.
Life Insurance Myths
Because of the many details involved and the sensitive nature of it, there are many misconceptions out there about life insurance.
Most Americans think this valuable coverage is more expensive than it really is - 80% of Americans think life insurance costs more than it does, with Millennials overestimating the cost by an average of 213%. This could help explain why so many Americans are underinsured!
Another misconception is that life insurance is more appropriate for high earners. However, most people could benefit from at least some life insurance protection. If someone depends on you financially, you should consider life insurance.
It’s not just income or a family that may need to be protected - if you are a stay at home parent, your contributions to your family are incredibly valuable. Hiring someone to take care of those duties would cost your family six figures a year! Even if you don’t have a family, life insurance could be a good investment. If you are carrying debt, you may want a life insurance policy so that your debts won’t fall to a co-signer.
Types of Life Insurance
When shopping for life insurance, you’ll find that there are several different types of life insurance. The types can be broken down into two categories: term life and permanent life. These different types vary in scope and price, so it is important to evaluate all of your options before choosing a policy.
Term life insurance offers a death benefit for a set period of time, or a “term.” Once the term is up, the death benefit can still apply, however, the premiums become much more expensive. Terms can last for 10, 20 or 30 years.
Term life insurance is generally a more cost-effective form of life insurance coverage. The drawback of term is that this less expensive coverage doesn’t stay cheap forever.
A permanent life insurance policy will cover death whenever that may occur, provided the insured continues to pay their premiums. A permanent life insurance policy will also build a cash savings component to the policy over time, which the insured can borrow against.
There are several different types of permanent life insurance, including whole life, universal life and survivorship. A life insurance agent can help you determine which type is right for you.
There’s no one right policy or way to purchase life insurance - for many people, a combination of the different types is the best way to look after their families. A life insurance agent can help you make a plan that works for your situation, budget and family.
Purchasing life insurance has changed a lot over the years - it is even possible to buy coverage entirely online! Some policies may require a medical examination, but oftentimes it is possible to find policies that do not. Even if you’d prefer to get your coverage online, speaking with a trusted life insurance agent could help you be sure you’re getting the right coverage for your situation.
Important Questions to Consider
If you’re thinking about life insurance, there are a few key questions you’ll want to consider to help guide your research and to prepare you to speak with an agent about your options. Our friends at AccuQuote have outlined several helpful questions:
How much coverage do I need?
Do I need temporary or permanent coverage?
How much life insurance can I afford?
Do I need additional coverage if I get disabled?
Can I adjust my policy down the road if my needs change?
What questions do you have about life insurance? Tweet us at @insuramatch and we’ll answer them in future posts!