Guide to life insurance


 Guide to life insurance

On the surface, life insurance seems like a pretty straight-forward product. You pay money for an amount of coverage that's not as much as you would need to live a comfortable life but is enough to take care of your family if anything were to happen. Covering your family financially and making sure there is something left after they are gone have been in our society since the beginning of time. What we fail to realize how important this security truly is. The truth is that insurance can be beneficial for more than just one person's well-being. Insurance itself can be helpful in mediating all aspects of a person's life, from what they purchase, where they live or travel, and even how much they earn and save each month.

One of the biggest financial decisions in someone's life is whether he/she should purchase life insurance. With many different options and policies to choose from, it can be difficult to understand the costs and benefits of each one. So let's go over some of the top considerations when purchasing this product.

What is Life Insurance?
The purposes of life insurance, as mentioned previously, are two fold:  to protect your family from a financial disaster, and to help build savings so that they will have assets to rely upon for a rainy day. When you get life insurance coverage you are insuring your lifetime income or estate against a worst-case scenario but not against something like losing an income because of unemployment or disability.

Is Life Insurance Important?
It is a common misconception that insurance is something that only the wealthy could afford, but it is important for everyone to be covered and given a proper choice when it comes to life insurance. Whether you are choosing between term or permanent, fixed or variable, you have many options available. And those options can be tailored towards your financial needs, saving goals and protection factors. What's more, unlike other contracts such as auto or homeowner's insurance, life insurance needs to be paid off over time in order to keep your benefits in place.

Types of Life Insurance: Term vs Permanent vs Variable Policy
There are certain underlying benefits to each type of policy that should be considered before making a decision. The two main types of policies are term and permanent. The term policy is a policy that lasts for a set period of time after which you have the option to renew the policy or replace it with another term policy, and payments continue. The permanent or life insurance policy provides coverage for your family throughout your lifetime either as part of an estate plan or as an individual policy.

Term vs Permanent vs Variable Term Insurance: 
Term insurance provides fixed monthly payments over the duration of the term and will end upon death. The biggest benefit of this product is that you can know all you would pay in premiums at the start of your term and can plan accordingly. You can also build wealth with the money you would have paid into the policy over time, making it a good savings option. However, these monthly payments are typically lower than other options as there is no guaranteed death benefit or return of principal.

Permanent Insurance: 
With permanent insurance an insured individual chooses how to structure an agreement on his or her policies that will extend for the remainder of his or her life. This type of coverage allows families to expand their insurance needs and benefits as life circumstances change throughout the duration of a life. For example, if an individual needs coverage of $100,000 at the time he/she is 20 years old and then has a child when they are 35, this policy would cover that difference. These policies are also good for investing as you can also build wealth on the money you put into these policies as well. However, permanent insurance does not have a guaranteed return of principal or death benefit.

Variable Insurance: 
Variable life is an insurance product that operates similar to a mutual fund account. Similar to term and permanent insurance, variable life is designed to help families in need and provide additional security in their finances. With this type of insurance, you have the ability to choose how much coverage you want and can build wealth over time. As with the other options, variable insurance should be considered in conjunction with an estate plan or tax strategy.

Life Insurance Costs:
When comparing different types of insurance there is a common misconception that term insurance is always more expensive than permanent or variable life since it is assumed that the premiums pay for a death benefit. It does not matter which type of policy you choose as far as cost goes; it's just a matter of what your needs are and the amount you can afford to pay in premiums for that coverage. There are so many factors to consider when getting life insurance. For example, if you are in poor health and don't have long to live, the cost of a permanent policy will offset paying for a term policy. Or if you are healthy and are under the age of 40, it might be best to get a term policy with premium payments that won't increase for a set amount of time based on your age before it expires and you would have to start over again with an new policy.

What is Underwriting?
Underwritng is the process that insurers use to determine whether or not they will cover an applicant/policyholder. This process can be summarized into a few steps:

Underwriting Guidelines:
Every insurance company has underwriting guidelines and each individual policy will have an own set of standards. Below are some of the guidelines that can affect whether you get coverage or not:
How much money the applicant makes in a year  – The amount of money you earn in a year will affect your premium level. Even if you make $100,000 per year, that doesn't mean you won't be affected by the income guidelines. It is dependent on how much other applicants make in order to be truly competitive on the market. If everyone has $50,000 annually, then those who make more will not be as competitive.
How many assets the policy applicant has will be a factor in determining how much coverage he/she will get.  The more assets you have, the more you will pay for your life insurance. This is because it is possible that you and your family may not have any financial issues if something happens to you, so the insurance company takes this into consideration when setting up premiums.
How many other policies you have are out there and what kind they are.  If you currently have life insurance policies from other insurers, those companies will know how much coverage you received and what kind of rate they charged you for it.

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