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Life Insurance Basics Life insurance provides valuable protection to family members and business partners in the event of an unexpected death. Proceeds from life insurance can help loved ones keep a family home and current standard of living or business partners maintain a thriving. Why To Have Life Insurance Single people without dependents may not have to worry about life cover while people with families and businesses should already have a life insurance policy. Reasons to carry life insurance include:
Two Basic Types of Life Insurance The two basic types of life insurance to choose from are term or permanent cash value. Both serve different purposes based on the individual needs of the insured for the people they leave behind. Term life insurance is purchased for a said period of time to cover expenses such as a mortgage and is a more affordable option. Cash value is permanent life insurance that provides a set payout at death and the policy builds a cash value over time. Level of Coverage Before purchasing a life insurance policy, needs of the people left behind must be determined including unpaid credit card debts, outstanding mortgages, future educational expenses, business costs and stand of living expenses. Buying exactly enough life cover without excess ensures the lowest rates. The length of term insurance varies from one to thirty years and should only be purchased for the period of time it will be required to cover certain basic expenses. Cost for Life Insurance Risk determines the price charged for life insurance policies. The greater the risk the insurance company will have to payout on the policy, the more the policy will cost. Factors such as age, health problems, tobacco use and the amount of cover purchased all affect the cost of a life insurance policy. To minimize health risks and insurance premiums, applicants can quit smoking, lose weight and purchase insurance sooner rather than later. Premiums drastically increase as applicants get older because there is more of a risk the policy will be paid out. Variable Life Insurance With variable life insurance, part of the premium goes toward the price of the insurance policy and the rest goes into savings called cash value, which is invested in a portfolio of funds referred to as sub-accounts. Policyholders may withdraw part of the policy's cash value or borrow money against it. Cash value portfolio accounts usually consist of a variety of stocks, bonds and investments. Enough money must stay in these accounts to pay monthly insurance costs or the insurance company will request additional premiums. Choosing sub-accounts must be done carefully. According to Michael Snowdon, faculty member at the College for Financial Planning, when people view variable life insurance as an investment product rather than cover, “they stand a very good chance of investing the money too aggressively.” Medical Examinations Certain life insurance companies require a physical exam to qualify for a life insurance policy. This medical examination conducted by one of their physicians ensures applicants tell the truth when applying for life cover. Dishonest responses on a life insurance application may cause the insurance company to decline paying out on a policy. A physical examination by the insurance company determines an applicants health condition to calculate the cost of insurance premiums. Group Life Insurance Employers may offer group life insurance to employees but this cover only continues as long as the company is in business or as long as the employee remains with the company. If an employee leaves the company, the life insurance policy ends. Purchasing a life insurance policy privately is a sure way to maintain ongoing coverage. Steven Weisbert, economist for the Insurance Information Institute, says buying an individual policy at a young age rather than depending on an employer is a much more “stable financial strategy”. Life insurance provides essential protection for people left behind in the event of an unforeseen death.
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