Insuring assets like your car or home is second nature to most Americans. But we often forget to protect our most important assets: ourselves and our family. While the chance of death is minimal while we’re young, there are plenty of good reasons to invest in life insurance.
What Everyone Needs To Know About Life Insurance
Before you jump into your first policy, it’s important that you understand how life insurance works and what it protects. Here are 9 essential things everyone should know about life insurance.
1. Life Insurance Is Important For People With Dependents
If anyone relies on you financially, you need to get health insurance. This includes your spouse, children, parents, and grandparents. You can even get life insurance for unmarried couples or non-romantic business partnerships if you can demonstrate that you hold an insurable interest.
2. Life Insurance Is A Contract (“Policy”) With A Company
Whether you’re a family of four or a part of a domestic partnership, the relationship between you and the insurer doesn’t change. The insurer will create a contract/policy between themselves and someone or something who/that has a financial interest in the life of someone/thing else.
3. Life Insurance Is Paid Monthly But Cost Varies
In exchange for paying a premium, your insurer agrees to pay a tax-free lump sum to your beneficiaries upon death. The amount they receive depends on what you make or the policy you take out. On the other hand, your premiums change based on your age, gender, and health.
4. Life Insurance Doesn’t Just Place A Monetary Value On Life
Life insurance is meant to cover the consequences of someone’s death. This includes funeral expenses, outstanding debts, educational fees, lost income, and paperwork. Life insurance also gives time for surviving family members to grieve and the ability to recover financially.
5. Life Insurance Come In Two Main Forms: Term And Permanent
Term life insurance is inexpensive and organizes its premiums based on terms (5, 10, 20, or 30). Permanent insurance is more expensive than term but stays with you for life. Permanent whole-life plans have a cash value, which can be saved or used to pay your premiums.
6. Life Insurance Should Be Use As A Risk Management Tool
While permanent whole-life insurance may be used to increase your investment portfolio, life insurance works better as a risk management tool. For example, it’s better to pay off your debt or max out your retirement savings account before you start pulling from your life insurance.
7. Life Insurance Doesn’t Have To Be Expensive Or Complicated
A healthy male of 30 will save more money on insurance than a 40-year-old, but they’ll also save more than a 20-something who smokes, drinks, or has a dangerous job. However, opting in early will lower your premiums and make the research process less complicated.
8. Life Insurance Is More Effective If You Speak To An Agent
Speaking to a life insurance agent about your policy is the best option. Not only will they be able to point you to the best policy for your needs, but they can walk you through the application and underwriting process. An agent may even be willing to fill out the necessary paperwork for you.
9. Life Insurance Can Be Canceled But Don’t Do So Lightly
Canceling the wrong policy can save you money in the long run. But if you still want a life insurance policy, don’t cancel the wrong policy until the right policy is in place. Switching is easier than applying for a new policy/insurer because you’re already approved for coverage.