Simply put, life insurance is a contract between you and an insurance company where you agree to pay a premium and the insurance company promises to give a sum of money to your designated beneficiaries in the event of your untimely demise. A contract that is designed to work like a safety net for your loved ones, ensuring they’ll be taken care of financially even if you can’t be there to do it yourself.
In this way, it can be thought of as a gift of love because it provides financial protection for loved ones after you are gone.
It can help ensure that loved ones are able to maintain their standard of living and continue to meet their financial obligations, or it can be purchased for the simple reason that you don’t want to leave your heirs with any final expenses or debt.
But at the end of the day it is a legal contract as well, so it’s important to understand how it works and what limitations it may have.
This is why we wanted to take a moment and review some of the most common questions we receive from individuals who are thinking about buying a life insurance policy so that you can have a better understanding of how they work.
What is Life Insurance?
Life insurance is a contract between an insurance policyholder and an insurer, in which the insurer (the insurance company) guarantees payment of a death benefit to named beneficiaries upon the death of the insured individual. In exchange for this guarantee, the policyholder typically pays a premium. The death benefit is typically a lump sum, but may also be provided in the form of an annuity, which pays out a fixed amount over a period of time.
How life insurance works?
Life insurance is a way to provide peace of mind for yourself and your loved ones. It’s a way to ensure that your family will be taken care of financially, even if something happens to you.
When you purchase a life insurance policy, you pay a premium, which can be a one-time payment or a series of payments over time. In exchange for this premium, the insurance company guarantees to pay a death benefit to your named beneficiaries upon your passing.
This death benefit can provide financial support for your family, helping them to maintain their standard of living and continue to meet their financial obligations. It can also serve as a way to leave a legacy or make a charitable donation.
Life insurance is not only a protection for loved ones, but also it is an act of love and care towards them. It is a way to show that you care about their well-being and want to provide for them, even after you’re gone.
Reasons to buy life insurance
There are many reasons why someone might choose to buy life insurance, but they all stem from the desire to protect and provide for loved ones.
Some of the most common reasons to buy life insurance include:
- To provide financial support for loved ones in the event of the policyholder’s death. The death benefit can help ensure that loved ones are able to maintain their standard of living and continue to meet their financial obligations.
- To pay for end-of-life expenses, such as funeral and burial costs, which can be costly and emotionally difficult for loved ones to handle.
- To leave a legacy or make a charitable donation. Life insurance can be used to leave money to a specific person or organization, such as a charity or educational institution.
- To protect a business. If a business owner passes away, the business may be at risk. Life insurance can be used to provide funds to keep the business running and protect the livelihoods of employees.
- To provide financial security for children or other dependents. If a parent or primary caregiver passes away, life insurance can provide funds to support children and other dependents.
- To pay off outstanding debts or mortgages. Life insurance can help pay off outstanding debts, mortgages, or other loans, which can provide financial relief for loved ones.
Ultimately, buying life insurance is a way to show love and care towards your loved ones. It gives peace of mind knowing that they will be taken care of financially, even if something happens to you.
Types of Life Insurance Policies
(defined in basic terms)
There are several different types of life insurance policies available, each with its own unique features and benefits. Understanding the different types (think term life and permanent life insurance) can help you make an informed decision about the best coverage for you and your loved ones.
- Term life insurance: This is the most basic and affordable type of life insurance. It provides coverage for a specific period of time, such as 10, 20, or 30 years. If the policyholder dies within that time period, the death benefit is paid to the beneficiaries.
- Whole life insurance: Also known as permanent life insurance, this type of life insurance provides coverage for the policyholder’s entire life. It also has a cash value component that accumulates over time, allowing policyholders to borrow against it or cash it out.
- Universal life insurance: This type of life insurance is similar to whole life insurance, but with more flexibility. It also has a cash value component and offers more options for premium payments and death benefits.
- Variable life insurance: This type of life insurance is similar to universal life insurance, but with the added benefit of being able to invest the cash value component in different investment options, such as stocks and bonds.
- Final expense insurance policies : This type of life insurance is designed for people who may have difficulty obtaining coverage due to health issues or other factors. It is generally more expensive and has stricter limitations on death benefits.
Factors to Consider When Choosing a Policy
Choosing a life insurance policy can be a complex and emotional decision, and there are several factors to consider when making your choice.
Some of the most important factors to consider when choosing the right life insurance policy include:
- Your current and future financial needs: Consider how much coverage you need to provide for your loved ones in the event of your death.
- Your budget: Consider how much you can afford to pay in premiums each month.
- The length of coverage: Consider how long you need coverage for. Some policies have a term of 10, 20, 30 (and even 40) years, while others provide coverage for the policyholder’s entire life.
- Your health: Your health can affect the cost of your coverage and your ability to qualify for certain types of policies.
- Your beneficiaries: Consider who you would like to receive the death benefit and how the death benefit will be used.
- Your occupation and hobbies: Some jobs and hobbies are more dangerous than others, and this can affect the cost of your coverage and your ability to qualify for certain types of policies.
- Your goals and aspirations: Think about how the policy fits with your long term plans, such as retirement or leaving a legacy.
It’s important to keep in mind that the right policy for you will depend on your unique circumstances and priorities.
Process of applying for life insurance
Applying for life insurance can be intimidating for some. However, by following these easy steps you can make the process a lot easier.
The process of applying for life insurance typically involves the following steps:
- Research and compare different insurance options: Before applying, it is important to research different types of life insurance policies and compare the features and benefits of each. This will help you determine which policy is the best fit for your needs and budget.
- Contact an insurance agent or financial advisor: An agent or advisor can help you understand the different options and guide you through the application process. They can also help you determine how much coverage you need and answer any questions you may have.
- Complete an application: Once you have chosen a policy, you will need to complete an application. This will typically include personal information such as your name, address, and date of birth, as well as information about your health, occupation, and beneficiaries.
- Underwriting: After you submit your application, the insurance company will review it and may ask for additional information. They will also conduct a process called underwriting, which is used to assess the risk associated with insuring you. This typically includes a review of your medical history, current health status, and any other relevant information.
- Medical Exam: Some insurance companies will require a life insurance medical exam as part of the underwriting process. This exam will typically include a physical examination, blood test, and urine test.
- (We should note however that some applicants may be able to qualify for a simplified issue or no exam life insurance policy thereby avoiding this step in the application process.)
- Payment of Premiums: Once the application is approved, you will be required to pay the first premium. After that, you can either pay the premium on a monthly, quarterly, semi-annual or annual basis.
- Policy Issuance: After the underwriting process is complete and the first premium has been paid, the insurance company will issue the policy. The policy will detail the coverage amount, the premium, the length of coverage, and any other relevant information.
It is important to note that the process can vary depending on the insurance company and type of policy you choose. Additionally, the process can take some time, so it’s a good idea to start thinking about life insurance well before you need it.
Common Objections to purchasing a life insurance policy.
There are several common objections that people may have when considering purchasing a life insurance policy. Some of the most common objections include:
“I’m too young, I don’t need it yet.”
It’s true that the younger you are when you purchase a life insurance policy, the lower your premiums will be. But the earlier you buy, the more time your policy has to grow cash value. Also, the younger you are, the more likely you are to be in good health, which can qualify you for better rates.
“I’m too old, I can’t get coverage.”
It’s true that as you age, the cost of life insurance increases, and it may be more difficult to qualify for coverage. However, there are options available for older individuals, such as guaranteed issue life insurance. It’s never too late to consider life insurance and provide for your loved ones.
“I don’t have enough money to pay for it.”
Life insurance can seem like an added expense, but it doesn’t have to be unaffordable. There are many options available, with different coverage levels and premium payments. An insurance agent or financial advisor can help you find a policy that fits your budget.
“I’m healthy, I don’t need it.”
It’s true that the healthier you are, the lower your premiums will be. However, accidents and illnesses can happen to anyone, and it’s important to be prepared for the unexpected.
Additionally, life insurance can also serve other purposes, such as leaving a legacy or making a charitable donation.
“I don’t think my family would need it”
It’s hard to predict the future and think about the worst case scenarios, but it’s important to remember that the death benefit from a life insurance policy can provide financial support for your loved ones and help them to maintain their standard of living, even in the absence of the policyholder. It can also serve as a way to leave a legacy or make a charitable donation.
“Life insurance is a scam.”
This is a common misconception, but life insurance is a legitimate financial product that has been around for centuries. It is regulated by government agencies, and insurance companies are required to follow strict rules and guidelines.
Additionally, when purchasing a policy from a reputable insurance company, policyholders have the security that the company will be able to pay out the death benefit when it’s needed.
“I don’t need life insurance because my spouse or partner is still working.”
While it’s true that a working spouse or partner can provide financial support for your family, a life insurance policy can provide additional security and peace of mind.
It can help to make sure that your loved ones are able to maintain their standard of living, even if your spouse or partner’s income is not enough to cover all expenses.
Additionally, it can help pay off outstanding debts and mortgages.
“I have enough savings, so I don’t need life insurance.”
While savings can be a great way to provide financial support for your loved ones, a life insurance policy can provide additional security and peace of mind.
Life insurance can provide a lump sum payment, which can be used to cover expenses that savings may not cover such as end-of-life expenses and outstanding debts or mortgages.
A life insurance policy can also serve as a way to leave a legacy or make a charitable donation.
“I’m not sure if I’ll be able to keep up with the premiums”
It’s understandable to have concerns about being able to keep up with the premium payments for a life insurance policy. The cost of life insurance can vary depending on factors such as age, health, and the amount of coverage you choose. However, there are many options available, including different coverage levels and premium payments plans.
For example, some policies offer flexible premium options that allow you to adjust your coverage or premium payments as your needs and budget change.
It’s also important to keep in mind that there are several different types of life insurance policies, some of them may have a lower premium than others.
For example, term life insurance policies typically have lower premiums than permanent policies.
“I don’t want to think about death and the future”
It’s understandable that thinking about death and the future can be uncomfortable and difficult. No one likes to think about the worst-case scenarios or the idea of leaving loved ones behind.
However, life insurance is not just about death, it’s about providing for your loved ones and ensuring their well-being, even in the event of an unexpected loss. It’s an act of love and care towards them.
Now if you’ve made it this far, in this article, it’s probably safe to say that you understand that there is value in owning a life insurance policy. This means that it’s now up to us to show you how we can make owning the right policy for you easy, fast and affordable!
So, give us a call and let us show you what we can do for you!