Life Insurance 101:
All the Basics You Need to Know About
There are many things to consider when it comes to getting a life insurance policy that can help protect your family’s future financial needs. This life insurance 101 guide can help make it easier to understand the basics about how life insurance works, types of coverage available, why you need it, and how to go about choosing a plan that’s right for you. After you read this guide, contact us to assist in getting you started.
What is Life Insurance and How Does it Work?
Life insurance is a contract between you and an insurance company to provide you with coverage based upon your timely payment of premiums. Life insurance provides a death benefit to your named beneficiary (usually a spouse, child, or business partner) upon your death. When you pass away, your beneficiary files a claim with the insurance company to submit proof (a death certificate) of your passing. After the insurance company receives all the documents, then your beneficiary will be issued the death benefit payout.
If you name a child as your beneficiary, then a custodian of the policy would have to file the claim. This could be someone who you named to manage the money from the policy in case you died while your child is still a minor. If you didn’t name anyone, then a court will appoint someone.
Main Types of Life Insurance
Life insurance can either be temporary or permanent. Temporary insurance is more commonly called term insurance, and policies are issued for a specific number of years, often from 5 to 30. These policies are usually less expensive and have large face amounts. Permanent insurance more commonly called whole life insurance covers you for your entire life or up to a certain age, usually 100-years-old. These policies last a life time, and most premium stay the same forever.
How Life Insurance Policies Are Issued
Policies are either simplified issue or fully underwritten. Simplified issue policies only require that you answer questions about your health when completing the insurance application. These policies may cost more since the insurance company has less proof about your health. Fully underwritten policies require that you take a medical exam and complete lab work. You usually get a lower premium with these policies if your results show good health.
Factors That Determine Your Premium Rate
Generally the younger and healthier you are, the less you will pay. Age is typically the most important factor in calculating your premium rate. Other factors include:
- Gender—females typically get lower rates because of longer life expectancy
- Answers to health questions on the policy application
- Results from medical exam and lab work
- Family medical history
- Marital status
- Lifestyle—smoker/nonsmoker, alcohol consumption, risky hobbies like skydiving
Why Do I Need Life Insurance?
There are three main reasons why many Americans get life insurance:
- To pay for burial and final expenses:even a simple funeral can cost thousands of dollars. The National Funeral Directors Association reports that the median price Americans pay for a funeral is $8500.00. That is approximately the base rate. Any adds on can cost the family much more.
- To replace income:if you died leaving behind a spouse and young children, it may be hard for them to make ends meet without your income. Money from a life insurance policy can help maintain your family’s standard of living and pay for expenses that go along with raising children.
- To pay off a mortgage:a large part of your working adult life is dedicated to paying off the mortgage on your house, which can take 30 or more years. Life insurance can help ease the financial burden your family may face to keep a roof over their head after you’re gone. Money from a policy can help them continue to make monthly payments or pay off the entire balance.
How to Buy Life Insurance
- Determine your needs: calculate your debt, monthly obligation, and final expenses
- Get a quote : All Quotes are FREE & only takes about 10 minutes
- Make an appointment with an agent: appointments can be virtual or in person
- Make sure you can afford the premium: you choose your premium
- Read your policy: once receiving your policy, please review to make sure there aren’t any errors.