Life Insurance – What is it?
The title of this post on life insurance may sound like a grim subject, but the reality is that it's important to take time to consider your family's future and what they'll need if you are no longer there. Luckily, this article will cover everything you need from life insurance basics to how much coverage will be needed based on your finances.
1) What is Life Insurance? Life insurance is an agreement between two people: one person agrees to pay the other person a sum of money (insurance benefit) in return for which that other person promises not to sue or otherwise assert legal action against the first party.
2) Life Insurance Basics
Life insurance covers your family in case of your death, not just your own. When you are planning for the future, you need to consider how much life insurance will be needed by family members in the event that you die. This is because should you die, they're likely going to need money to live on.
If no one else pledges a sum of money toward supporting a "beneficiary," he or she may sue your estate and take what is left (the estate). If a beneficiary puts up cash for coverage as well, they generally cannot sue the insured person's estate if they end up being financially dependent on it.
Life insurance can cover expenses for the living arrangements, education, transportation, medical needs and any other reasonable expenses that a beneficiary may need in order to live.
3) Life Insurance Specialists
Life insurance specialists are those individuals that help people choose what type of life insurance is best based on their specific needs. Some of the most common life insurance specialists include:
-Bankers/ Financial Advisors
-Accountants/ Tax Preparers
-Real Estate Agents/ Brokers
-Financial Planners and Consultants
4) Life Insurance Prices (Costs)
A general rule of thumb is that term life insurance costs significantly less than cash value or whole life policies. The reason for the lower prices is because there is less paperwork involved during the policy term and because there are less assets being covered.
Term policies are also less expensive than variable life insurance (at least in California). Variable life-insurance plans are much more complicated and have much higher prices.
5) Life Insurance Quotes Online
Life insurance quotes online are generally easy to obtain with a few keystrokes of your keyboard, especially if you're using one of the top online quote vendors such as:
-QuoteWizard, which you can check out here: http://www.quotewizard.com/
-QuoteMyLife (also from QuoteWizard), which you can check out here: http://www.quotemylife.com/
Insurance companies also charge online quote vendors a fee that changed from one quote vendor to another became higher or lower than normal. The amount a company charges is very hard for you to know, so it's best to shop around and get as many quotes as possible.
6) Life Insurance Policy Terms and Conditions
A life insurance policy is defined by the sets of contract terms between the insurance company and the insured person. The insurance company is the party that agrees to pay the benefit if the insured person dies, while the insured person is the one who pays for coverage.
Referring to a standard life insurance policy, there are generally two types of terms:
-General (regular) provisions
-Conditions that vary from policy to policy
7) Life Insurance Policy Terms Explained
Here's an overview of some of the most common general and condition terms you may encounter in a life insurance policy: (this list is not complete). For more information about these or other terms, check out this site: http://www.insuremywonderful.com/Life_Insurance_Terms.html.
-Net Premium. This is the amount of money that the policyholder pays the insurance company each month for coverage. That's right – premiums are tax deductible .
-Premium Guarantee: In standard policies, there is usually a percentage of premium that is fully refundable if necessary. The refund amount differs based on the type of policy selected.
-Residual/Term Life Insurance (term not guaranteed): This type of life insurance generally starts with a period known as "residual" or "term" life insurance, which covers your monthly expenses for as long as you live (usually 20 years). After that, the beneficiary receives cash benefits in return for paying any future premiums. This is usually lower than the premiums paid at the beginning of a policy.
-Lapse: In life insurance, coverage can lapse if premiums are not paid within a designated period of time. Coverage will usually run for three years unless otherwise stated in the policy contract. The premium must be paid by cash or check; credit cards are not accepted.
-Guaranteed Issue: This type of insurance policy is guaranteed to issue coverage regardless of your health status or history. The only consideration will be your age and the amount of coverage for which you apply. All applications are immediately approved and all individuals who apply are guaranteed insurability in some way, shape or form.
-Guaranteed Renewability: This type of coverage is guaranteed to renew as long as the policyholder continues to pay premiums.
-No Medical Exam or Physical Required: This is one of the major benefits of most term life insurance policies. These policies require no medical exam or physical unless an agent or representative deems it necessary due to an applicant's age, health history, lifestyle, etc.
-Cash Value: Cash value refers to the amount of cash that can be withdrawn from a life insurance policy based on investment interest for the purposes of obtaining a loan or getting back a portion of what was paid in premiums for coverage.
-Cash Surrender Value: This references the value paid out when you surrender your policy. This value may be very low and is typically 50% or less of your premium. On top of this, the policyholder will have to repay any extra that the insurance company chooses to keep.
-Discount: The policy may include a discount (sometimes referred to as Death Benefit Reduction Pooling). This is a discount applied where the insurer agrees to pay out less than what an actuarial calculation would suggest based on future mortality rates. Typically, this occurs when there is inadequate cash value or term life insurance coverage in a given geographic area (example: you live in an area with a high number of natural disasters).
-Agent/Representative: An insurance agent acts on behalf of both the insured and policyholders.
Conclusion:
Insurance companies are not in the business of providing a great service, but rather just trying to maximize their profits. As such, these companies tend to be pretty conservative in how they price their life insurance policies. This is why life insurance (and automobile and property and other types of insurance) tends to cost more in more expensive markets.
But don't fear! You can still find reasonably priced policies if you know what you're looking for – generally speaking there isn't much difference between "cheap" and "reasonably priced" when it comes to life insurance.