What is Life Insurance?
As you age and your life begins to change your goals may change as well. You could be a parent that is saving to pay for your children to go to college. Or perhaps you recently became a homeowner and have plans to upgrade your new house. Maybe you made a career change and want to invest in your small business.
Regardless of your goals, your plan for the future is not only critically important to you, but also to your loved ones. If something was to happen to you how can you ensure that these goals will still be met? One way to do it is through the investment in a life insurance policy. Life insurance provides the reassurance you need to be confident in your family’s financial future.
How Does Life Insurance Work?
Before you invest in another form of insurance you are likely wondering, what is life insurance and how does it work? Similar to other forms of insurance, life insurance is essentially a contract between you and your insurer. For a premium, life insurance companies guarantee that if you die within a designated term they will pay a sum of money (otherwise known as a death benefit) to designated individuals (otherwise known as beneficiaries).
What Types of Life Insurance Are Available?
As you begin to research the best life insurance policy for your needs you will discover that there are both short-term and long-term options available. The primary example of a short-term option is term life insurance and the primary example of a long-term option is whole life insurance.
Term life insurance protects you for a specific period of time such as 10, 20 or 30 years. Therefore your beneficiaries will be paid if you die within in that set period. Meanwhile a whole life insurance policy will protect you throughout your entire life.
Why Should I Consider Term Life Insurance?
Term life insurance may be right for you if you are specifically interested in ensuring that your family can make ends meet should you die prematurely. For example, if your spouse would be unable to pay the mortgage, for childcare or for college for your children without you then this type of policy might be a good fit.
The concept behind a term life insurance policy is that it should cover you until your financial future is more secure as your home would be likely be paid off, your children would be employed and you would have a larger amount of money in savings.
The benefits of this type of policy include:
- You are able to buy a significant amount of coverage for a relatively smaller premium.
- You can purchase the amount of insurance you need to reach your goals.
- If your goals change you may be able to convert your term policy into a whole life policy.
The drawback to a term life insurance policy is once the term has ended you no longer have access to the investment you made in the policy. While you may be able to convert it into a whole life policy it is typically very expensive to do so.
Why Should I Consider Whole Life Insurance?
The drawback of whole life insurance is that it can be significantly more expensive than a term life policy. However there are a number of benefits of this type of policy, which include:
- No expiration. As long as you maintain your premiums you will be covered for your entire life.
- Cash value benefits. Over time your policy will accumulate a guaranteed cash value that grows like a savings account. You can borrow against the policy, withdraw funds or cancel the policy and cash out the value completely.
- Potential to earn dividends. Many whole life insurance policies will pay dividends, or a portion of the company’s profits, to policyholders. These dividends can be received as cash, but they can also be used to reduce premiums or to purchase additional insurance.
- Fixed premium rates. Whole life insurance policies guarantee that your premium won’t increase as you age or your health status changes.
How Much Does Life Insurance Cost?
The type of policy you select and its length will have a significant impact on cost, but the other major factor in determining your life insurance premium is your life expectancy. Life insurance companies calculate premiums based on factors such as your age, gender, health, tobacco use and more.
Since life expectancy is so critical in determining costs, it is wise to invest in a policy as soon as possible while you are young and healthy.
How Much Life Insurance Do I Need?
The best way to determine how much life insurance you need is to talk to a licensed professional, but some of the questions you should consider include:
- Family size – How many children do you have?
- Home value – What is your home worth and do you still have a mortgage?
- Future costs- Are you children planning to attend college and do you intend to pay for their education?
- Permanent dependents – Do you have a child with a permanent disability who will require lifelong care?
Where Do I Start?
Once you have determined a ballpark figure regarding how much life insurance you need you should get a number of life insurance quotes from different companies. Comparing different rates and policies will help you determine the best life insurance policy for your needs.
Is Life Insurance Worth It?
Life insurance is a worthy investment for not only for a spouse or a parent, but can also be beneficial for:
- Individuals who have concerns about covering the expenses for their own funerals.
- Business owners who are concerned about the well-being of their employees and/or partners should they unexpectedly pass away.
- Homeowners who have a mortgage on their home.
- Individuals who want to give back to a charity or non-profit that means a lot to them.
Life insurance may not be your top priority while you are young and healthy; however unfortunate tragedies can happen at any time. A death in the family is hard enough to manage, but imagine if the family had to deal with financial challenges as a result of the loss as well.
If you’re considering a life insurance policy, look no further than Freeway Insurance. We can answer all your questions about life insurance and help you obtain a policy that fits your needs and budget. Request a free life insurance quote online or over the phone at 800-777-5620.