You may not have considered it before, but having a plan in place for when you pass away can ensure that your loved ones are well looked after. This can include taking out a life insurance policy.
Surprisingly, only 54% of people in the USare covered by some type of life insurance (as of 2020). This may be because thinking about life insurance and where to begin can be quite daunting. Let’s explore what life insurance is and the different types available, to help you decide which life insurance is best for you.
In simple terms, life insurance provides a type of protection in the event of your death. Your nominated beneficiary will usually receive a lump sum of cash in these circumstances, known as the death benefit.
The amount of death benefit will vary between different providers, as will the monthly or annual cost you pay towards the plan. The application process usually involves a health assessment or questionnaire, and in some cases a medical exam carried out by a health professional.
When it comes to which policy is best, it will depend on your personal circumstances. Your medical history, the level of life insurancealready in place from your employer, or the monthly/annual premiums you can afford will all have an impact on the life insurance that suits you best. There are plenty of resources available online, such as The Insurance Bulletinfor example, so it’s always best to conduct some research beforehand. If you feel the need, you can also consult a financial adviser, who can provide their expertise to your situation. It’s highly recommended to apply for life insurance, if you have children, a partner or any dependents that rely on your income. If you are no longer around, you need to consider if there is anyone who would struggle without financial support or inherit any debt that you have accumulated in your lifetime. It also may be the case that you need funeral expensescovered, which can surmount to a cost of $7,640 (the national median cost of a funeral with viewing and burial). This is where a life insurance policy would be beneficial.
It’s also not a good idea to hang around if you are thinking of applying for life insurance, as premiums tend to be more expensive, the older you become. You tend to be healthier and fitter when you are younger, with less health issues, which will work in your favour when going through the application process.
As previously mentioned, the best insurance for you will depend on your personal situation. As such, insurance providers offer different types of life insurance that can suit your requirements. Let’s look at some of the most common types:
This policy is set for a certain period of time or ‘term’ in other words. It provides your beneficiaries with a death benefit and covers you for the number of years you choose. It usually doesn’t consist of any additional costs to fund the cash value or an investment account.
If your circumstances involve young children, for example, which you want to ensure are supported at that age if you pass away, then a term life insurance policy could work for you.
This type of insurance works in a somewhat opposite way to term life insurance policies. This is because it is a premium you pay for as long as you live, which is also how long your beneficiaries are entitled to receive a death benefit. It also usually includes a cash value component, which acts as a savings vehicle.
If you wish to provide a death benefit to your loved ones regardless of the timing of your death, then you should consider whole life insurance.
Universal life insurance works in a similar way to whole life insurance, in terms of the death benefit offered and the cash value component. However, you have the ability to change the premium payments and the level of death benefit at any given time.
There is no ‘one size fits all’ when looking to apply for life insurance, as each individual’s situation will be different. As discussed, you should carry out some research initially, and ask yourself if the conditions of the policy suit your requirements.