September 24th, 2020 → 8:54 pm @ Tess // No Comments
Since September is Life Insurance Awareness Month, we thought we would go back to the basics and address some of the most frequently asked questions we get about life insurance. So, if you got some questions about life insurance you want answers to, read on.
Life insurance is a legal contract or agreement for a defined period between an insurance policyholder (the insured) and an insurance company (the insurer). In exchange for premium payments, the insurance company provides the insured policyholder with a lump-sum payment, known as a death benefit, to a beneficiary upon the insurer’s death. The beneficiary may be a spouse, child, parent, grandparent, or even a charitable organization. The type of life insurance purchased is, based on your specific needs and goals.
There is the old cliché that three things we know without certainty are change, taxes and death. But when it comes to change, life is unpredictable and can change on a dime. There is no way of knowing what tomorrow will bring. Whatever current financial plans you have in place now— paying down debt, saving for retirement, or managing the daily bills—can all be derailed by unexpected disasters.To put it in perspective, ask yourself this very question: If something were to happen you today, would your family be financially prepared and able to sustain the same standard of living? If your answer is yes, you need life insurance.
Just because you have no dependents or family you take care of does not mean you do not need life insurance. There are many reasons to purchase life insurance that extend far beyond protecting your loved ones. For example, whole life insurance, a type of permanent life insurance, has a cash value feature that builds equity over time through guaranteed growth and potential dividends. You can access this equity through a policy loan for major lifestyle purchases such as a car or buying your first home, retirement income, educational savings for your children, and even financing and growing a business.
The best time is anytime–whenever you can. However, the earlier you start, the better. Life insurance premiums increase the older you get, so the optimal time to purchase life insurance is in your 20s or 30s when insurance premiums are affordable and you’re healthier. While you can still buy insurance in your 50s and up, health comes into play, which can drive up insurance premiums.
There are two types of life insurance: term insurance and permanent insurance.
Term Insurance
Term insurance provides a death benefit to your loved ones (a beneficiary/beneficiaries) if you were to pass away within the term (how long the policy lasts). Typical term policies cover a period of 10, 20, or 30-years. When the term expires, the insurance policy will come up for renewal and, under these conditions, the terms of the insurance policy may change, and premium payments increase.
Permanent Insurance
There are three types of permanent insurance—Whole Life, Universal Life, and Term 100. The insurance premium remains the same throughout the life of the insurance policy and, there is no need to renew because the policy covers the insured for what is considered their lifetime, hence the name “permanent” insurance. Whole life and universal life insurance have cash values attached to them that may or may not be based on the markets. Term 100 has no cash value.
What an average life insurance policy will cost you isn’t easy to pin down since it depends on many variables. The most important ones that impact the cost of life insurance premiums include the type of insurance policy you buy, coverage level and term, age, health (pre-existing medical conditions), smoker or non-smoker, hobbies and gender.
The type of life insurance you buy depends on what you can afford and what your needs are. Knowing what life insurance to buy and how much life insurance you should buy is best done with the guidance of a licensed life insurance broker who can conduct a needs analysis with you. A needs analysis provides an overview of your current financial picture: what kind of capital your survivors will need when you pass away, the assets available to them, the liabilities your family will be responsible for, and continuing needs for family income and support. From there, you and your life insurance broker will have a better indication of what type of life insurance you may need. That said, you will get a better return over the long-term by purchasing whole life insurance that features a cash value as where term insurance does not. Term insurance may be more affordable and if that is what you can afford, to begin with, ask about term insurance that you can eventually convert to whole life.
The life insurance application process starts by filling out a medical and financial questionnaire. These questions facilitate the underwriting process that determines your eligibility for the life insurance policy and coverage you want to apply for. Underwriters will do a risk assessment on your application based on your occupation, lifestyle, travel, financial background, medical issues, hobbies, and potential beneficiaries. There are two types of underwriting: traditional writing that requires a medical examination and simplified underwriting that requires no medical examination but filling out an online application that features medical questions. Based on the outcome of the underwriting process, the insurance company will then make an informed decision on your application.
If you get denied life insurance–and it does happen–it could be because you fall into a high-risk category. There are health and non-health reasons: pre-existing health conditions such as obesity, diabetes, high blood pressure or other serious illness. Non-health reasons may be having a dangerous hobby or occupation, criminal record, being a smoker, or poor financial history. However, take comfort that there are options available to you. The best course of action is to discuss what these options are with your licensed life insurance broker.
Disclaimer: The material provided in this newsletter is for informational and/or educational purposes only. The information, opinions and/or views expressed in this newsletter are those of the authors and not necessarily those of the distributor. All financial endeavors should be vetted through a financial professional: life insurance broker, financial planner, accountant, lawyer, and/or other professional, as the reader sees fit. MacDev Financial Group Corp., SET Financial Solutions Inc., including but not limited to its agents, staff, associates and/or partners will not assume any liability for any Information printed in this article; indirectly, or assumed. The MacDev tagline, “Financial Control For Life” and “Bank On Whole Life” are trademarks of the MacDev Financial Group Corp. Click Legal for further information.
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