Life insurance can feel a little daunting and be a delicate subject. Today, we want to help ease this conversation from an objective perspective, so that you can make an educated decision that is best for your family and circumstances.
Life Insurance in a Nutshell:
Life Insurance is a contract between you, the policyholder, and an insurance company. It allows you to plan long-term and provide your loved ones with the financial support they may need in case anything happens to you. Essentially, the policyholder pays the insurance company premiums (or payments) during their lifetime, in exchange for a guarantee that the insurance company will give a sum of money upon death (known as a “death benefit”) to named beneficiaries. Beneficiaries can include a person, business, or non-profit organization. It’s important to note that the insurance company can only hold their guarantee as long as the policy holder pays their premiums.
How Life Insurance Works:
There are various types of Life Insurance policy structures. Some of the most favored include:
Term Life Insurance – This type of coverage provides financial protection for a specified length of time, known as a “term.” If the insured dies during the term, and the policy is active (in other words, payments have been made), then their beneficiary will be paid. This type of Life Insurance is competitive because once the term has been selected, a monthly rate is locked in. This means that the insurance company cannot change the price of your premium until the completion of your term. A 20-year term is popular with young parents because the belief is that children will no longer be a financial burden at age 20. The truth is that the most recent research we have seen says that adult children are not financially independent until age 29, on average.
Permanent Life Insurance – This type of coverage is in effect “forever” or as long as the policy holder is alive, and of course, pay their dues. Under this umbrella term, there are several types of permanent policies, including Whole Life, Universal, and others. However, typically an attractive feature to all permanent policies is not only the “death benefit,” but also the “living benefit.” This is a tax-free savings account that the policy holder can use or borrow against during their lifetime.
The cost of Life Insurance is directly linked to your age, medical history, gender, hobbies, and more. You may even be asked to complete a medical exam. From here, an underwriter will assign you a “rating” that drives the cost. In general, there are four broad ratings based on several factors—Tobacco User, Standard Non-Tobacco User, Preferred, and Preferred Plus.
Personalizing Your Policy:
Like all insurance, your policy should be tailored to your needs, not the other way around. Riders are a great way to customize your Life Insurance. These are extra benefits that you can purchase to fit your needs. For example, a “Long Term Care” rider can help cover the costs of assisted living. There are certain events that Life Insurance will not be able to cover. It’s critical your insurance advisor walks you through your policy’s language so that you know exactly what you and your beneficiaries are getting.
Who should consider Life Insurance?
Life Insurance can be a wise policy throughout your adult life. As you begin your career, this typically means you can secure coverage at a lower rate. However, it’s more common for people to start thinking about Life Insurance once they’re building a family or entering retirement. While this policy significantly helps those who are aging or facing illnesses, you don’t have to be “sick” to benefit from Life Insurance. It’s centered around setting your loved ones up for success in case of an unexpected loss.
Helpful Tip: As difficult as it may be, it’s important to tell your family how to access the policy and get in touch with your insurance advisor. If you don’t feel comfortable telling them personally, think about specifying this information in a will.
As you’re shopping for the right insurance carrier remember that your policy should reflect your circumstances. Life Insurance is personal. Don’t be afraid to ask hard questions and request clarifications of the small print. Here at Heritage Insurance Advisors, we are committed to flexible care that reflects your unique story.