What You Need to Know About Life Insurance
The commercials on TV are convincing. A couple talks about a friend who recently died and how the family is struggling to pay the bills. One of them then makes a phone call to purchase a life insurance policy so this doesn't happen to them. The commercial concludes with the actors talking directly to the viewers about the importance of taking care of the family.
If you've ever watched these or seen advertisements for companies like Lincoln Heritage Life Insurance or American Life Insurance Company, you may have questions. Talking about life insurance needs can feel uncomfortable and a bit overwhelming. When you arm yourself with basic information about the industry, you're better prepared to make these decisions.
There Are Two Different Types of Life Insurance Policies: Term and Permanent
Understanding the differences between life insurance policies helps you choose the policy that best meets your needs. Life insurance in the U.S. is classified as either a term or permanent policy. A term policy lasts for a set period of time, such as 10 or 20 years. If the insured individual dies while the policy is in effect, the beneficiary receives a payment from the insurance company.
Permanent insurance — also called whole life, variable life or universal life — combines a death benefit with some form of cash savings. Part of the premium covers the cost of the insurance. The cash value part of the policy gets set aside and earns interest over time. This offers some benefits to policyholders while they're still living. They may be able to borrow money against the policy or use it to pay for future premiums.
If Anyone Depends on You for Financial Support, You Need Life Insurance
At the very least, a life insurance policy should cover the costs of your final expenses. This includes the cost of a burial or cremation, a funeral and outstanding debts. If you have a spouse or dependents who count on your income, your policy should also provide money to cover the lost income, mortgage balance and education plans. The last thing they need to worry about as they grieve your death is how they're going to pay the bills.
You Can Find a Basic Life Insurance Policy That’s Affordable
Some people shy away from life insurance policies because they think they can’t afford them. The truth is that policy premiums vary depending on several factors. Smokers and individuals with serious health conditions can expect to pay more for their policies. Younger people and women also tend to have lower premiums than older adults and men. In fact, the premium for a plan that has coverage of $250,000 can cost less than $200 per year.
Your Life Insurance Needs Change Over Time
The level of life insurance coverage you need changes over time. When you're young and have no spouse or children, you may not need a policy because no one is counting on your income. The same is true for individuals with adult children and those who have enough money in savings to cover their loved ones' expenses.
Another consideration is when to buy a life insurance policy. Some people wait until they marry or have children. Others purchase a guaranteed renewable policy before they have dependents. This type of policy ensures they will always have coverage as long as they pay the premiums on time.
Talk to a Professional About Your Insurance Needs
There are plenty of online tools that can evaluate your insurance needs and help you choose a policy that works for you. There are also plenty of advantages in talking to someone who understands the industry and the available products. Insurance agents, estate planning lawyers and tax professionals have the ability to understand you as an individual instead of numbers plugged into a program. As a result, they can explain the pros and cons of life insurance and help you find the perfect policy for your situation.