Tips & Advice
How do I find the best life insurance policy/provider?
There are many different providers and plan types, so shopping for life insurance can be complicated. The first step involves understanding the type and amount of life insurance you need. From there, use online tools or contact local insurance agents to get quotes on rates and learn about how to apply.
How much does life insurance usually cost?
The cost of a life insurance policy is determined by two things: the guaranteed benefit amount and the individual risk of the policyholder. The latter is more complicated, and includes many factors, including health, age, and occupation.
As of May 2017, a 30-year-old woman purchasing a 20-year, $250,000 term life policy can expect to pay about $141 per year. For comparison, a 60-year-old woman purchasing the same policy can expect to pay $1,033 per year.
Since women have longer life expectancy on average than men, the latter can expect to pay slightly more. The same 20-year, $250,000 term policy will cost a 30-year-old man $156 per year on average.
Will life insurance cover medical expenses?
Certain specialized policies may provide income replacement in the event of disability, disease, or another situation where it may be impossible to work and medical expenses are high. One common alternative is known as an “accidental death and dismemberment” policy. AD&D policies work similarly to term life plans, but will only pay out death benefits when a fatality is caused by an accident, or if the policyholder loses a limb or the ability to see or hear. Death from a heart attack or cancer, for example, is usually not covered by AD&D, but these policies might offer lower premiums than a standard term plan.
Is it better to save or invest instead of purchasing a life insurance policy?
Many adults with children choose to buy a term life plan that covers them from the birth of a child until they turn 18, which is often the most cost-effective way to insure against the risk of income loss from unexpected death. While it is possible to save enough cash or invest to provide even more funds in case of such an emergency, investing is subject to more risk of loss than a life insurance plan, and accumulating enough savings to provide a sizeable safety net can be difficult.
What is universal life insurance?
Whole life and universal life plans are each considered a type of “permanent life insurance.” Universal life is often similar in concept to whole life, but offers more flexibility in premium payments and cash withdrawals. For example, you might be able to temporarily pause or reduce premium payments at any time under a universal policy. It’s also often possible to borrow from what you’ve already paid into the plan or against a guaranteed death benefit in the form of a loan.
How does whole life insurance work?
Another common form of life insurance is a whole life plan. Like a term policy, a whole life plan requires paying a regular premium and will distribute a death benefit to beneficiaries. But, unlike term life plans, whole life plans accrue additional value as premiums are paid. This means that the policy grows in cash value over time, and might also earn additional interest that is tax-deferred. In this way, whole life plans can be thought of like specialized savings accounts, and are often used to transfer wealth among spouses or heirs without incurring estate taxes. Some whole life plans are also aimed at financially supporting a disabled family member, even after the policyholder has died.
How does term life insurance work?
One of the most common forms of life insurance policy is known as a term life policy. Under a term life plan, you pay a fixed premium for a set amount of time, usually between 10-30 years. If you die in an accident, or in some other way recognized by the plan, your beneficiaries will receive the full value of the policy. In most cases, this amount is the same regardless of how much you have paid in premiums. However, if you remain perfectly healthy at the end of the term, you simply stop paying premiums, but will not receive any benefit. Term life is popular among families with young children, as it can provide a financial safety net in the event they die, but only for as long as they are unable to support themselves. Premiums for term life plans are usually among the lowest of any type of life insurance.
How much life insurance coverage do I need?
The most basic way to determine the type and amount of financial coverage in your ideal policy involves a few factors:
- Your current income and your expected future income.
- How much your family will need for future major expenses, including education, health care and cost of living.
- Your net worth, which includes the value of all assets like your home and investments, as well as all debts.
Some insurance companies suggest buying a policy worth around 10 times your current income, potentially adding another $100,000 per child. However, some people choose to take out a policy simply for covering funeral expenses, which can be as little as $10,000. Consider speaking with a professional to learn more about the life insurance policy options.
Do I need life insurance?
Unlike health or auto insurance, there is no legal requirement to have life insurance, nor is there any kind of penalty for not having it. Life insurance is completely voluntary, but many adults who work to support children and other family members have it.
What is life insurance and how does it work?
Life insurance protects against financial loss related to the death of a family member whose income is relied upon by their children, spouse or others. In a basic life insurance policy, members pay a regular premium with the guarantee that upon death, their beneficiaries (surviving family members) will receive a payment. There are many terms and conditions that apply, and no two life insurance policies are the same.