A life insurance policy is an agreement
between an insurer & policy owner whereby insurer promises to pay out
certain amount of money when insured dies, in return for premiums that
policyholder has paid during their lifetime. best life insurance companies are
those with good financial standing, low customer complaints, high satisfaction
& variety of policy types.
Types Of Life Insurance
There are many different kinds of life
insurance to suit all needs & preferences. choice between temporary &
permanent life insurance depends on whether insured person has short or long
term needs.
Term Life Insurance
The term life is intended to cover specific
number of years & then expire. When you purchase policy, duration is
chosen. Term lengths are usually 10, 20 or 30 years. best life insurance term
policies are those that balance affordability & long term financial
stability.
- Decreasing Term Life Insurance is renewable term insurance that provides
coverage at decreasing rate over course of policy.
- Convertible term Life insurance allows policyholder to change
temporary policy into permanent policy.
- Renewed term Life insurance quotes are based on date of purchase. premiums
are increased annually & cheapest term insurance is usually purchased
at start.
Most term life policies will allow you to
extend policy on an annual or bi annual basis. It is possible to increase your
coverage by renewing your policy each year. But premiums can be steep as they
are calculated based on age. Converting your term policy to permanent one is
better option for coverage that will last forever. If you want this option, not
all term policies offer it. Look for policy that converts to permanent one.
Permanent Life Insurance
Permanent Life Insurance is more costly
than term insurance. But coverage remains in effect for as long as insured
lives unless they stop paying premiums or cancel policy. When payment of
premium is late, some policies offer automatic loans.
- A whole life policy lasts for duration of your life. Cash value is used to fund
policy. Its similar to an account. Cash value Life insurance allows policy
holders to utilize cash value in many ways, including to make loans &
pay for policy premiums.
- The Universal Life
(UL) Insurance offers permanent insurance that
includes component of cash value. Universal life features flexible
premiums. premiums for universal life can be changed over time, unlike
whole & term insurance. They are also designed to have death benefit
that is either level or increasing.
- The Indexed Universal Life (IUL), form of universal insurance,
allows policyholder to earn an equity indexed or fixed rate of return for
cash value.
- The Variable
Universal Life (VUL),insurance, allows policyholders to invest their
policy cash value into separate account. policy also offers flexible
premiums & it can have death benefit that is either level or
increasing.
Compare Top Rated Companies
You can start your search for life
insurance by looking at our list of top companies.
Permanent Life Insurance Term or Permanent? Permanent Life
Insurance
While term life insurance is different from
permanent insurance in many ways. it tends to meet requirements of those who
are looking for affordable coverage. term life policy is only valid for certain
period & provides death benefits if insured dies before that time. This is
in contrast with permanent life insurance which remains in force as long as
insured pays their premiums. second difference is cost of premiums. Term life
insurance tends to be cheaper than permanent because theres no cash value.
You should first analyze your finances
& calculate how much would be needed to meet your beneficiarys standard of
living, or reason you are purchasing life insurance. Consider how long you will
need coverage.
If youre main caregiver & you have two
children aged 2 & 4, you will want to purchase enough coverage to take care
of your children until they are old enough to be able to provide for
themselves.
Consider costs of hiring child care
provider & housekeeper, or even using commercial cleaning & childcare
services. Then add some money to cover education. Include any outstanding
mortgage & retirement needs for your spouse in your life insurance
calculation especially if spouse earns significantly less or is stay at
home parent. If you are able to afford it, you should add up these expenses
over next 15 years & adjust for inflation.
A type of life insurance with modest death
benefit is or Burial insurance. Beneficiaries can choose how to use their death
benefits, regardless of name.
What affects your life insurance premiums & costs?
The cost of life insurance can be affected
by number of factors. Some things are beyond your control but you can manage
other factors to reduce costs before & even after applying. Cost is largely
determined by your health & age, so its best to buy life insurance right
away.
If your health improves & you make
positive lifestyle modifications, you may request risk class change after you
have been approved for insurance. Your premiums wont increase even if you are
found to be in worse health now than when your underwriting was first done.
Your premiums could decrease if you are found in better health. It may be
possible to purchase additional coverage for cheaper rate.
Investopedia / Lara Antal
Life Insurance Buying Guide
Step 1: Calculate How much you need
Consider what costs would be incurred in
event that you died. Think about things such as mortgages, tuition for college,
other debts & funeral costs. Income replacement can be big factor,
especially if you or your loved one need money & cannot provide it for
themselves.
Online, you can find tools that will help
calculate amount that is needed to cover any expenses.
Step 2: Preparing Your application
In general, life insurance applications
require beneficiary & personal medical information. It is possible that you
will be required to undergo physical exam, as well as disclose your medical
history, including any previous medical conditions & DUIs. You might also
need to reveal any hazardous hobbies such auto racing & skydiving. Most
life insurance applications include following elements:
- The most important factor is your age. Life expectancy. Which
is determined by insurers risk assessment is main factor.
- Gender Women generally pay less than men of same age because they
live statistically longer.
- Smoking People who smoke are at greater risk of many diseases that can
shorten their life expectancy & raise risk based insurance premiums.
- Health: Most policies require medical exams that include screenings
for heart conditions, cancer & diabetes.
- Lifestyle: Lifestyles with high risks can increase premiums.
- Your family medical
history: You are at higher risk for certain
diseases if you know that your relatives have suffered from major
illnesses.
- Your driving record: If you have history of drunken driving or moving violations,
your insurance rates can be dramatically increased.
Before policy is written, you will need to
provide standard forms of identification, like your Social Security Card, U.S.
Passport & drivers licence.
Compare policy quotes
After you have gathered all information you
need, compare quotes for life insurance from several providers. prices can vary
greatly from one company to another, so you should make an effort to compare
policies, ratings & costs of different companies. Finding right policy for
your life insurance needs is important because youll be paying monthly premiums
over many years.
You can get head start with our list of top
life insurance companies. This list shows top companies for various types of
insurance needs based on research we conducted with nearly 100 insurers.
Benefits of Life Insurance
Life insurance has many advantages. Here
are top features & benefits of life insurance.
The majority of people purchase life
insurance in order to give money to their beneficiaries who might suffer
financial hardships if insured died. For wealthy people, however, life
insurances tax benefits can offer additional opportunities. These include
ability to defer growth of cash value & receive tax free dividends.
Avoiding Taxes
A life insurance death benefit is generally
tax free.4 However. it may be subject to Estate Taxes. This is why some wealthy
people buy life insurance in trust. They can avoid estate tax & maintain
value of their estates for heirs by using trust.
Avoiding taxes can be legal strategy to
minimize ones tax liabilities. It should not, however, be confused with Tax
Evasion which is an illegal act.
Who Needs Life Insurance ?
After insured persons death, life insurance
can provide support for surviving family members & other beneficiaries.
These are some people that may require life insurance.
- Parents of minor children. Loss of income & care giving
abilities could cause financial difficulties if parent passes away. kids
can be provided with resources needed until they are able to support
themselves by purchasing life insurance.
- Special needs adult children of parents. Life insurance is good
option for children with special needs who need lifelong care. You can use
death benefit to create trust for special needs. Which fiduciary manages
on behalf of your adult child.
- Adults that own property jointly. If death of an adult means
that another cannot afford to pay for loan, taxes, or upkeep on property
due to loss of income, then life insurance is advisable. An engaged couple
that takes out mortgage jointly to purchase their first home is an
example.
- Adult children that provide care for elderly parents can be
left money. Adult children often sacrifice their time to help an elderly
parent in need. Direct financial assistance may be included in this help.
When parent dies, life insurance may help cover costs of adult child.
- Parents who have taken out private student loans or signed loan
on behalf of their children. Life insurance is not necessary for young
adults who do not have dependents. However, if parent of child will still
be responsible for debt owed after death of child. it may make sense to
purchase enough insurance so that debt can be paid.
- Young adults or children who wish to lock in low insurance
rates. Insurance premiums are lower if youre younger & healthy. Even
if he or she does not have dependents, 20 year old adult may purchase
policy based on expectation that they will in near future.
- Stay at home spouses. Life insurance is good idea for stay at
home spouses, as their work at home has significant value. Salary.com estimates that value of staying at
home parents would be equivalent to salary of $162.581.
- Families with high net worth who anticipate having to pay
estate taxes. life insurance policy can cover estate taxes, preserving
value of your estate.
- Families that cannot afford funeral & burial expenses.
Small life insurance policies can help families pay for funerals &
burials.
- Businesses with key staff. Businesses with key employees.
- Married pensioners. Pensioners dont have to choose between
receiving pension that includes spouse benefit or not. They can accept
full amount of their pension & then use some of that money to purchase
life insurance for their spouse. strategy used is pension maximization .
- Pre existing Conditions Cancer, diabetes or smoking are
examples. Some insurers will deny or charge high premiums for people with
certain conditions.
Every policy is different for insurer &
insured. Review your policy to determine what your insurance covers & how
much your beneficiary will receive.
What you should do before buying life insurance
Research Policy Options & Company Review
Life insurance is significant investment
& commitment. Its important to conduct proper research to ensure that life
insurer you select has an excellent track record & financial stability, as
your heirs might not be receiving any benefits for decades. Investopedia
evaluated scores of different insurance companies & rated them in various
categories.
Consider Your Death Benefit Needs
It is good way to protect your family in
event of your death. There are some situations where is not best option, such
as when you purchase too much insurance or insure someone whose income does not
need to be replace. Its vital to take into account following.
What costs would not be covered if you were
to die? Maybe it isnt warranted if your spouse earns lot & you have no
children. You should still consider your spouses financial needs & effect
of your death. If both spouses are required to earn income in order to meet
their financial obligations or maintain lifestyle they desire, both may require
separate life insurance.
Please read this article to learn why you should buy life
insurance
When buying life insurance for another
member of your family, you should ask yourself: What are you looking to
protect? In case of death, burial costs may be needed to cover children &
senior citizens who have no income. parent might also wish to ensure their
child is insured in future by buying modest sized policy while theyre young.
This allows parent to make sure that their child will be able to financially
support their family in future. maximum amount of life insurance that parents
can purchase for their child is 25% of their current policy.
Would investing money paid as premiums to
permanent insurance over course of policy yield higher return? Consistent
saving & investment, such as self insurance, could be better hedge against
uncertainly in certain cases, if an income is not needed to replace or policys
cash value returns are too conservative.
How Life Insurance Works
The two major components of life insurance
policy are death benefit & premium. These are two main components of term
life insurance. But whole or permanent life policies have an additional cash
value.
1. Death benefit. Death benefit. For
example, insured could be parent & their beneficiaries might be children.
According to estimated needs of beneficiaries, insured chooses amount for death
benefit. Insurance companies will decide if there is an insured interest, as
well as if insured can qualify for coverage, based on their underwriting
criteria. These include age, health & hazardous activities that insured may
participate in.
2. Premium. Insurance premiums refer to
amount of money that policyholder must pay in order for insurance company to be
able pay out death benefits. Premiums can also depend on how likely insurer is
going have pay this benefit, based upon life expectancy of insured. insureds
gender, age, health history, occupation hazards & risky hobbies are all
factors that can influence life expectancy. premiums for policies with higher
death benefits are more expensive. They are also higher when policyholder is at
higher risk. Permanent policies which accumulate cash values are also higher.
3. Cash value. Cash value. cash value of
permanent life insurance is used as savings plan that can be used by
policyholder during lifetime of insured. It accumulates tax deferred. In some
policies, withdrawals are restricted depending on intended use of money.
policyholder may, for example, take out cash value loan & pay interest.
Cash value can be used to purchase insurance or pay for premiums. When insured
passes away, living benefit remains in companys possession. Cash value loans
will decrease death benefit of policy.
What You Need to Know
Sometimes, policy owner is different from
insured. business may buy key person insurance for critical employee, such as
CEO. Or, an insured person might decide to sell his or her policy in exchange
for money, through settlement.
Changes to Life Insurance Policies & Riders
Most insurance companies allow
policyholders to modify their policies in order to meet their specific needs.
Riders is most popular way for policyholders to modify their policies.
availability of riders depends on each provider. Typically, policyholder pays
an extra premium or fee for each rider. However, some policies include riders
as part of their base premium.
- This rider provides extra life insurance protection in case
insured dies accidentally.
- If policyholders insured is rendered incompetent, rider will
relieve them of paying premiums.
- Disability income riders pay monthly benefit if insured is
unable to continue working for several months due to an illness or
accident.
- The rider for accelerated death benefits allows an insured to
receive part or entire death benefit upon diagnosis of terminal illness.
- The Long Term Care Rider can be used for in home or nursing
home care, or to cover assisted living.
- The rider allows policyholder to purchase additional insurance
without having to undergo medical examination.
Loaning money. Cash value is feature of
most permanent life policies that policy holders can use to borrow money. In
theory, cash value is used as collateral to borrow money from an insurance
company. policyholders score does not matter, unlike with some other loans.
loan repayment terms are flexible & interest is credited to cash value of
policyholder. If you do not pay back loan. it can lower your policys benefit.
How to fund retirement. Cash value policies
or investments can be used to generate retirement income. opportunity may come
with higher fees & lower death benefits, making it better option only for
those who have already maxed out other tax advantaged investment & savings
accounts. Life insurance is another option to fund your retirement.
You should re evaluate need for life
insurance every year or following major life events such as marriage, divorce
or birth of baby. It may be necessary to change beneficiaries of your policy,
increase or decrease your insurance coverage.
How to Qualify for Life Insurance
The Insurance Information Institute reports
that there were 841 life insurance & annuity companies in United States as
of 2018. With hundreds to choose from it is possible for anyone to locate
policy at reasonable price. Which meets some or all their requirements.
According to Insurance Information Institute, there were 841 companies that
offer life insurance or annuities in United States as of 2018.
Moreover, there are many companies that
offer different types of life insurance policies & policies of various
sizes. Some even specialize in policies tailored to specific requirements, like
policies designed for those with chronic illnesses. Brokers who are experts in
field of life insurance know exactly what each company offers. Brokers can help
applicants find insurance at no cost. It is possible for almost everyone to get
life insurance policy, if they are prepared to look & pay high prices or
accept less than ideal death benefits.
Because insurance market is so much larger
than most consumers think. it is possible to get life insurance even if your
previous application was denied or you were unable to afford quotes.
The younger you are & healthier you are
more likely you will qualify for insurance. As you age & become less fit.
it becomes harder to get life coverage. Some lifestyle choices such as smoking
or taking part in dangerous hobbies like skydiving can also lead to higher
insurance rates or make it more difficult to qualify.
Who Needs Life Insurance ?
If you want to protect your spouse, kids
& other family members if something happens to you, then life insurance is
must. death benefit of life insurance policy can be used to pay for mortgage or
college tuition. It may also help with retirement. Cash value is also component
of permanent life insurance that grows over time.
What affects your life insurance premiums?
- Life insurance costs less as you get older
- Females tend to be cheaper
- Smoking increases insurance premiums
- Poor health (higher premiums if you are in poor health)
- Risky lifestyle (risky activity can raise premiums)
- Families with history of chronic illness (chronic illnesses in
family can increase premiums).
- Drivers record (good drivers can save money on their premiums).
What are benefits of life insurance?
- Tax free payouts. death benefit is paid in lump sum & not
taxed by federal government because its not income to beneficiaries.
- The dependents wont be worried about their living costs.
majority of policy calculators suggest multiplier equal to your annual
gross income that will cover major expenses such as mortgages, college
tuition & other large costs without requiring survivor spouse or child
to borrow money.
- You can cover final expenses. With standard life or term
policy, you can avoid funeral expenses that can be substantial.
- The policies can be used to supplement other retirement
savings. Policies such as permanent life insurance, including whole,
universal & variable policies, can provide cash values in addition to
death benefit. Which can supplement other retirement savings.
How do you qualify for life insurance?
You must submit life insurance application
to be eligible. Life insurance is accessible to everyone. cost of your premiums
can be affected by factors such as age, health & lifestyle. Certain types
of insurance do not require any medical history. But they have higher rates
& waiting period prior to receiving death benefits.
