Do you have life insurance? The type and amount of coverage you need vary depending on your circumstances. It pays to know your options so that you’re prepared for life’s changes.
How do you know if you need a policy, and what kind should you get if you decide it’s right for you? What must you do to get accepted, and can you use your coverage for anything other than protecting your loved ones when you’re gone? Get your answers to these questions so that you can make informed decisions throughout your life.
1. Do I Need Life Insurance?
The answer to this question depends on your circumstances. Ask yourself the following question: Does anyone in my life rely on me or my income? If the answer to that question is yes, you should consider a policy sooner rather than later. According to 2017 statistics from industry groups, 70% of Americans feel they need life insurance, but 41% lack a plan.
You might think, “I’m not married and don’t have kids — I don’t need life insurance.” However, as much as you don’t want to consider it, the unexpected can happen. Consider the following scenarios before you decide it’s not for you:
- Your significant other: Even if you aren’t married, do they rely on your income? If you cohabit and something happened to you, could they pay the rent and other bills independently?
- Other family members: Do you care for an aging parent? Maybe you have nieces and nephews whom you want to help through college — some options may help with this.
- What about your funeral: You don’t need life insurance to have a funeral. You can buy a separate plan to cover these expenses or pay for your ceremony in advance to ease the burden on your family. However, if you have no plans to pay for your final expenses, you could substantially burden your loved ones by going without any coverage.
2. What Is Term Life Insurance?
For many individuals, term life policies put coverage within affordable reach. These policies are not permanent, which keeps your monthly premium lower. They cover you for a specified period, usually from 10 to 30 years, although other alternatives exist. They provide significant peace of mind if you have a family, a home or other debts you need to make sure get covered if you die.
Nearly all life insurance policies go up in price as you age, so if you are in your 20’s or 30’s, the time to act is now. Seek out policies that offer term life conversion potential. This option means that you can start with the lower term price, and, as your income increases, you can later convert to a permanent life insurance policy.
3. What Is a Whole Life Policy?
A whole life policy is one type of permanent life insurance. Permanent policies do not expire until you die. While they cost more than term policies, the younger and healthier you are when you first obtain coverage, the better your price will be.
The benefit of this type of policy is that it combines coverage with savings as a bonus. Your premiums accumulate a cash value because your insurer invests a portion into high-interest savings or investment account. You can later borrow against this amassed amount to pay for things like college tuition. Additionally, you’ll enjoy fixed premiums, meaning you know what your bill will be each month.
4. What Is Universal Life Coverage?
Universal life is similar to whole life in that it is permanent — with one relevant exception. Unlike whole life, you can reduce or increase your death benefit throughout the life of your policy. Like whole life, a portion of your premiums go into an investment account, and once enough accumulates, you can adjust your monthly premium by modifying your coverage amount. This option comes in handy if you hit an unexpected economic downturn but don’t want to abandon coverage altogether.
5. Are There Other Types of Life Insurance?
Other products might suit your unique needs better. Consider the following:
- Joint survivorship life insurance: This policy covers you and another person jointly with the money going to beneficiaries when both policyholders die. It’s a wise option for divorced parents with children in common.
- Mortgage life insurance: If you want to leave your home to your kids free and clear, consider this type of policy. The beneficiary is your mortgage company. It gets paid off when you die so that your children will always have a roof over their heads.
6. Will I Need a Health Examination?
Unless you go with a strict final expense policy that only covers your funeral you will generally need a health examination. While you might pay more if you smoke or have underlying conditions, you should be honest. You don’t want your beneficiaries to find out they’re disqualified because you lied.
7. How Do I Select Beneficiaries?
Your beneficiaries typically consist of the people who rely on your care or your income. Many people include their spouse and children, but you can name any person, charity or trust.
8. What Are Common Policy Limitations?
You do need to die for your beneficiaries to collect. Many term policies have an exclusionary period for suicide shortly after purchase. If you feel like ending your life, reach out for help, please. Additionally, if you quit smoking but later restart the habit, your insurer may reclassify you as a smoker, which means higher premiums.
Your Top 8 Life Insurance Questions — Answered
Now that you know the basics, you can make an informed decision as to whether life insurance is for you. Choosing the right policy can give you and your loved ones substantial peace of mind in case the unthinkable occurs.