The Importance of Life Insurance

Posted by Mario Pizzeri on Aug 1, 2016 12:14:35 PM

family-having-fun-tease-today-150821_34ed5bf7adf6c3ddc43fe55d1fa9f44f.jpg"If a child, a spouse, a life partner, or a parent depends on you and your income, you need life insurance." - Suze Orman

The Basics:

When it comes to life insurance, many individuals become evasive due to the complexity of the numerous policies offered. While it can be very confusing at times, life insurance can be one of the most important insurance policies to own. With a better understanding of life insurance, individuals find that it can offer a great sense of security in the event of a sudden accident. 

Life insurance is an agreement between you and the insurance company. Under the terms of a life insurance policy, the insurance provider agrees to pay money to a family member or a person of choice upon your death. This person can be switched at any time, as well as adding additional beneficiaries. Life insurance policies require premium payments that allow for the insurance company to pay out a larger amount in the case of a death. The person receiving the sum payments is your beneficiary, who is specified when you agree to the insurance contract. Appropriate life insurance coverage should provide you with that ideal sense of security since you know that those you care about will be financially protected if you are to pass away.  

Although it is unlikely, a sudden death in the family can cause all kinds of damage whether it be mental or financial. If this death takes away the family member whose salary pays the mortgage, car payment and other major expenses, the family could lose everything. Thankfully, life insurance is there to make sure that if this sudden occurrence of death strikes, your family will have financial independency. The money is available from a life insurance policy almost instantly following a death. The usage of life insurance as money is typical - it can help erase debts from mortgages, education etc. 

Selecting the Insurance:

A lot of variables will form the life insurance policy you need. These variables tend to be marital status, your financial state, the size of your family (if you have one), your job, if you smoke and many others. If you are 25 and do not have a family, life insurance may not be as necessary to you as it is to the 55 year old business man with 3 children in college. 

The following questions are from 360financialliteracy.org - these will help you determine how much life insurance you actually need. The best way to find out how much life insurance you need is to reach out to insurers and get assessments based on your lifestyle. 

  • What immediate financial expenses (e.g., debt repayment, funeral expenses) would your family face upon your death?
  • How much of your salary is devoted to current expenses and future needs?
  • How long would your dependents need support if you were to die tomorrow?
  • How much money would you want to leave for special situations upon your death, such as funding your children's education, gifts to charities, or an inheritance for your children?

Cost:

All insurance policies vary in price, due to the interchangeable components. The specific policies, and the individual statistics listed above all help to determine the cost. The amount of coverage you can afford is runs parallel to your financial status (right now and in the future). As stated before, talking to insurance agent's will get you the best assessment and estimate on your pricing and policy. 

The Policy:

A standard life insurance contract contains the following - legal provisions, your application and a policy specifications page. The legal provisions deal with payments and other legal clauses which your agent will cover with you. The policy specifications page varies the most due to the specifics of the policy holder. This states the money that will be distributed following your death, as well as stating how many premium payments to keep the policy alive. 

There are two general types of life insurance, term life and permanent life. Term policies provide life insurance protection for a certain period of time. If you outlive the term policy you have selected, the policy is just destroyed unless you choose to renew it. The money is only paid out in a term policy if you are to pass away before the term is up. These "terms" are available for periods of 1 - 30+. Some companies restrict the age on which you can renew the term policy. 

Permanent insurance policies allow the individual protection for life. This policy sees a higher premium payment cost than the term policies. 360financialliteracy.org also breaks down the permanent policies into great detail. 

  • Whole life: You generally make level (equal) premium payments for life. The death benefit and cash value are predetermined and guaranteed. The policyowner's only action after purchase of the policy is to pay the fixed premium.
  • Universal life: You may pay premiums at any time, in any amount (subject to certain limits), as long as policy expenses and the cost of insurance coverage are met. The amount of insurance coverage can be decreased, and the cash value will grow at a declared interest rate, which may vary over time.
  • Variable life: As with whole life, you pay a level premium for life. However, the death benefit and cash value fluctuate depending on the performance of investments in what are known as subaccounts. A subaccount is a pool of investor funds professionally managed to pursue a stated investment objective. The policyowner selects the subaccounts in which the cash value should be invested.
  • Universal variable life: A combination of universal and variable life. You may pay premiums at any time, in any amount (subject to limits), as long as policy expenses and the cost of insurance coverage are met. The amount of insurance coverage can be decreased, and the cash value goes up or down based on the performance of investments in the subaccounts.

Life Insurance has the power to save a family from complete financial burden. Learning and understanding the basics of life insurance is extremely beneficial to anyone with a family. Put your family in a better and more secure state of mind by getting life insurance.  Click here to get a free quote on life insurance from Mid-State Insurance!

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Topics: Life insurance

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