What Exactly Is Life Insurance?
A life insurance policy is a legal agreement between you and an insurance company. That contract is known as a policy. To keep the policy active, you agree to pay a premium (either a lump sum or regular payments over time). In exchange, the insurance company will pay your beneficiary a death benefit if you die while the policy is still in effect.
The amount of the death benefit is determined by the amount of coverage purchased. Coverage amounts can range from $5,000 to millions of dollars (for funeral expenses, for example). You can name more than one beneficiary and designate a percentage of the payout for each. You can also name organizations as beneficiaries, such as charities.
Compare Life Insurance
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| Compare Life Insurance Review |
People rarely want to think about death when planning their future, but it is a financial obligation to your family. Compare life insurance policies to see which ones will provide the most benefit to your dependents while remaining within your budget. Enter your zip code above to compare free life insurance quotes from competing life insurance companies!
There are various types of life insurance, including term life insurance, whole life insurance, variable life insurance, universal life insurance, and universal variable life insurance. Each type of life insurance has a different benefit and cost, so your lifestyle and budget will play a role in determining which type of life insurance is best for you.
You can compare life insurance products and learn about their benefits. Once you've determined the best type of life insurance for you, you can shop around to compare rates and see which insurance company can provide you with the most affordable option.
Cost cannot be the only factor to consider when selecting a life insurance company. It is a good idea to look into an insurance company's history to ensure that they are a strong company with the financial resources to pay out its policyholders' benefits.
Cash Value Policy Varieties
There are various kinds of life insurance policies that provide cash value benefits in addition to death benefits. Cash value life insurance policies include whole life, variable life, universal life, and universal variable life.
Whole life insurance is a low-risk investment that provides a death benefit while also building cash value. This is a straightforward life insurance policy with a set premium that is guaranteed for life. If you pay your premium on time every time it is due, the rate will never rise.
Your investments for the cash value portion of your policy are managed by the insurance company. You can choose to receive dividend checks or use your earnings to pay off your premiums. Unlike some other life insurance policies, you can also withdraw funds if necessary.
In addition to a death benefit, variable life insurance provides cash value. Your premium rate is fixed for the life of the policy, but the investment portion of your account invests in slightly higher-risk funds, giving your cash value a better chance of growth but also putting it at risk.
Universal life insurance is one of the more adaptable insurance plans, with adjustable premiums and face values. Although this policy pays market-rate interest, you cannot divide your investment among different money market funds as a policyholder.
Universal variable life insurance is available to those who want complete control over the investment accounts for their life insurance policy. Universal variable life insurance allows the policyholder to make all investment decisions, shifting the burden of gains and losses to the policyholder.
Policies for Term Life Insurance
Term life insurance is one of the most basic types of life insurance available. It does not have any cash value options, but it does provide a death benefit to the policy owner's beneficiaries upon his or her death.
Because term life insurance has no cash value, it is usually one of the least expensive policies to purchase. You can choose how long you want the policy to be in effect, such as 10 years or 30 years, giving you even more flexibility in selecting the life insurance that is most appropriate for your family's needs.
For example, a 25-year-old male with a child may decide to purchase a 20-year life insurance policy to cover his dependent's childhood years. The policy limit he selects represents the death benefit amount. So, if he purchases a million-dollar policy, his beneficiaries will receive a million-dollar inheritance when he dies. If he does not die during the 20-year term, no death benefit is paid, and no premiums are refunded.
Calculating Life Insurance Benefits
Whatever type of life insurance policy you choose, you must decide how much coverage to purchase. There are numerous formulas for calculating how much money your family will require after you pass away. It is also necessary to determine who in the family should be covered by life insurance.
Many people believe that unless there is an unusual circumstance, children do not require life insurance. Those same people believe that life insurance is an unnecessary expense for a single person with no dependents. This is a personal decision that must be made on an individual basis.
There is also some disagreement about whether everyone in the household should have life insurance or just the breadwinner. However, some people fail to recognize that financial contributions do not always imply physical income.
This means that if a family has two adults and one works to support the family financially while the other stays at home to support the family emotionally and physically, both parties are contributing to the family's financial well-being. Consider how much money will have to be spent if the nonworking family member dies. Housekeeping, laundry, meal preparation, errands, chauffeur expenses, and daycare are all significant hidden costs that most stay-at-home parents provide.
You must examine your household expenses to determine how much life insurance you require. As a general rule, your family should receive a minimum death benefit equal to roughly two years of your annual income. This is based on the assumption that it will take approximately two years to reorganize and, if necessary, create a new budget.
Compare the Financial Strength of Life Insurance Companies
After determining how much life insurance you require and the type of life insurance policy you desire, you must select a life insurance company from which to purchase your policy. Because life insurance policies are typically long-term, it is critical to select a life insurance company with proven longevity and strong financial standing.
Official institutions such as A.M. Best, Moody's, and Standard and Poor's rate life insurance companies on a regular basis. Each organization has its own rating system, but they all consider the company's assets and debts. Every year, they also review the number of premiums and claims received and paid out.
The internet simplifies insurance shopping by allowing you to compare rates and obtain information while browsing from the comfort of your own home. You can also use the internet to research different companies and read customer reviews to see how they handle customer service or how quickly they pay out claims.
It is critical to find a reputable insurance company for your life insurance policy. When comparing life insurance policies, take into account the entire transaction. Learn about all of your life insurance options, including term life, whole life, variable life, universal life, and universal variable life, and then choose the best one for you. Consider the overall cost, the complete benefits package, and the life insurance company itself.
Life Insurance
Life insurance can be perceived as complicated, morbid, and tedious. Many people mistakenly believe that life insurance is too expensive for them, but it can provide a vital safety net for your family if the unthinkable occurs.
Life insurance is not as common as it was a decade ago. Currently, only 52% of Americans have life insurance. According to the 2021 Insurance Barometer Study conducted by LIMRA and Life Happens, two industry-funded organizations, it was 63% in 2011.
One of the most common misconceptions about life insurance is that it is costly. You can save money on life insurance by comparing quotes and determining which policy is best for your situation.
The higher your premium, the more coverage you purchase. Gender, age, and health at the time of application all have an impact on life insurance quotes. If you get coverage while you're young and healthy, you can lock in a lower rate.
If you wait until you have serious health problems, you may be unable to obtain a traditional life insurance policy because insurers will deem you too risky to insure.
What Is the Purpose of Life Insurance?
The primary reason for purchasing life insurance is to provide financial security for those who rely on you. If you died while the policy was in effect, your beneficiaries would receive a tax-free payout that they could spend however they saw fit. This money could enable them to do the following:
- Pay for your final costs, such as a funeral and burial.
- Help your family pay bills and daily expenses by replacing your income.
- Assist in the repayment of debts such as a mortgage
- Contribute to the cost of child care.
- Contribute to your children's college education.
Purchasing life insurance may also allow you to leave your children an inheritance without having to worry about how you spend your own money in retirement. You can also leave a legacy by donating your life insurance to a charity, organization, or cause that is important to you.
Life insurance can also be used for retirement and tax planning. A cash value feature is typically included in a permanent life insurance policy. The cash value grows tax-deferred and can be used to supplement retirement income.
However, this strategy is usually only appropriate for high-income individuals who have already maxed out their other retirement accounts. It is critical to consult with a financial planner to determine whether this strategy is appropriate for you.
Life Insurance Types
Life insurance policies are classified into two types: term life insurance and permanent life insurance. There are also numerous options for permanent life insurance. Before making a decision, it's critical to understand what each type has to offer.
Life Insurance (Term)
Term life insurance provides coverage for a set number of years-typically 5, 10, 15, 20, 25, or 30. During this time, your premiums will remain constant. The insurer will only pay a death benefit if you die while your coverage is active. The longer the term length you select, the more expensive your life insurance quotes will be.
Term life insurance quotes are much lower than permanent life insurance quotes and can be a cost-effective way to have coverage in place during the years when your family relies on you for financial support.
Life Insurance That Is Permanent
As long as premiums are paid, permanent life insurance provides coverage for the rest of one's life. It also allows you to accumulate a cash value that grows tax-free. Because of these features, permanent life insurance quotes are much higher than term life insurance quotes. Permanent life can also be more complicated than term life due to the various policy types.
Whole life insurance provides lifelong coverage as well as a cash value component. It is the most expensive type of life insurance because it allows for a guaranteed rate of return on cash value, the opportunity to earn dividends from the insurance company, and premiums and death benefits that remain constant over time.
Universal life insurance provides lifetime coverage but does not always provide the same guarantees as whole life insurance. Within certain limits, some universal life policies allow you to adjust the premium payments and death benefits. Furthermore, the cash value of some universal life insurance policies fluctuates.
- Although guaranteed universal life has little cash value, the premiums and death benefits are fixed.
- Indexed universal life insurance may allow you to adjust your premiums and death benefit. Because the cash value is linked to a market index, such as the S& P 500, the rate of return can fluctuate. Indexed universal life insurance policies are complicated and can have high fees.
- Variable universal life insurance has adjustable premiums and allows you to choose how to invest the cash value portion among the insurer's investment options. With variable universal life insurance, the rate of return will depend on the investments you choose.
Another type of permanent life insurance is a guaranteed issue. It's aimed at a specific demographic: older adults who want a policy that will help pay for their final expenses. There is no medical exam, and you cannot be denied coverage if you meet the age requirements. Typically, coverage is limited to $25,000 or less. And the cost is high in comparison to other policies for the coverage provided.
Aspects Considered in Life Insurance Quotes
Your age, gender, and health are the most important factors influencing life insurance rates. Women tend to pay less than men because they live longer lives on average. Young and healthy adults will receive the most affordable life insurance quotes and will be able to lock in a low rate for the duration of their policy.
Life insurance quotes will typically include information such as:
- Your medical history, including any current or previous health issues
- Medications that you are currently taking or have previously taken
- The medical history of your family (parents and siblings)
- Your driving history, particularly DUIs, reckless driving convictions, or speeding tickets
- Smoking, drinking, and drug use are all risky behaviors.
- Skydiving is a dangerous hobby.
- Dangerous occupations with hazardous duties
- A bankruptcy or a criminal record are examples of financial factors.
5 Things to Consider Before Obtaining Life Insurance Quotes
Don't let common misconceptions about life insurance prevent you from obtaining life insurance quotes. Here are a few highlights.
- Life insurance may be less expensive than you think. According to a Forbes Advisor analysis of average life insurance rates, the average cost of a 20-year term life policy with a $500,000 death benefit for a healthy 30-year-old woman is $252 per year, or $21 per month. The average annual rate for a male is $300, or $25 per month.
- When purchasing life insurance, the younger you are, the less you will pay. The rate you pay is affected by your age and health. If you put off purchasing life insurance, you will pay more simply because you will be older. Furthermore, if you develop health problems, your life insurance quotes will skyrocket. For example, men who purchase a 20-year term life insurance policy with a $500,000 death benefit at the age of 40 rather than 30 can pay up to 36% more. It is up to 39% higher for women.
- A life insurance medical exam may not be required. There are numerous excellent options for no-exam life insurance. We discovered several insurers that provide 30-year terms and more than $1 million in coverage without requiring a medical exam.
- The application process can be quick and simple. If you're in good health, you might be able to apply online and be approved for coverage in a matter of minutes, without having to take a medical exam.
- Because prices can vary greatly, you should compare life insurance quotes from various insurers. If you work with an independent insurance broker, the broker will compare prices for you.
How to Get a Quote for Life Insurance
When purchasing a life insurance policy, you don't want to pick a coverage amount or policy length at random. If you do, you risk being underinsured and leaving your family without a financial safety net.
Here's how to get life insurance quotes for the right plan and coverage amount for you.
Step 1: Determine your life insurance requirements.
Understanding your financial obligations and financial resources is critical to determining how much life insurance you require. You should purchase enough life insurance to cover any financial obligations that your resources will not be able to cover. You may desire more if you wish to leave a legacy in addition to providing financial assistance.
When calculating your life insurance needs, consider the following financial obligations:
- Funeral and burial costs: According to the National Funeral Directors Association, the median cost of a funeral with visitation and burial is $7,848.
- Replacement of income: Consider how much of your annual salary must be replaced and for how long (for example, until all of your kids have graduated college).
- Debts: How much would it cost to keep making mortgage payments or to pay off the mortgage completely? Include any other large debts that must be paid as well.
- If you are unable to assist, your spouse or partner may need to hire someone to care for or transport young children.
- Consider how much you want to contribute to your children's college education and multiply that amount by the number of children you have.
Consider the following assets or resources to help you meet your obligations:
- Cash reserves can help cover bills or short-term expenses in an emergency.
- College savings: The more you save in a 529 college savings account or other accounts, the less life insurance you'll need to cover the cost of your children's college education.
- Retirement savings: Money in a 401(k), IRA, or another retirement account could be used to help loved ones cover expenses or as a source of income in retirement.
- Existing life insurance policies: Consider any existing life insurance policies you may have as a resource to meet your obligations. However, if you leave your job, you may lose any life insurance coverage you have through your employer.
- Prepaid funeral expenses: If you've pre-paid for a funeral, you'll have one less expense to cover with life insurance.
Step 2: Research life insurance companies.
A life insurance policy is a long-term commitment, so look for an insurer with a good reputation and options that meet your needs at a reasonable price.
If you are looking for term life insurance, for example, you may want to consider an insurer's age limit for renewing the policy or your ability to convert it to a permanent policy.
Alternatively, if you want a permanent policy with a cash value component, the best life insurance companies have dependable policy illustrations, low policy expenses, and outstanding financial strength.
Step 3: Compile your information
For a life insurance quote, you'll need to provide some basic information. This could include:
- Weight and height are examples of general information.
- Medical history, including current and previous health issues
- Medical histories in the family, such as heart disease in parents and siblings
- Medications you are currently taking or have previously taken
Step 4: Get life insurance quotes.
Comparing quotes from different insurers is the best way to find a good deal on a life insurance policy. You can get free quotes from the following companies:
- Online. The majority of insurance companies provide free quotes on their websites. You can compare quotes by visiting the websites of various insurers. You can also save time by visiting a website that offers quotes from multiple companies.
- Telephone or in-person You can get life insurance quotes by calling or visiting a local insurance agent. Remember that a "captive" agent only works for one insurance company, so speak with an independent agent who sells policies from multiple insurers.
How to Get Life Insurance
It's time to apply for a life insurance policy after you've gathered quotes and decided on an insurer who will meet your budget and needs. Depending on the type of underwriting used, the application process will differ.
- Full underwriting: This traditional underwriting process necessitates you filling out a lengthy questionnaire, taking a life insurance medical exam, and giving the insurer permission to gather information about you from a variety of third-party sources. The process can take up to 60 days, but if you're healthy, it will most likely result in the lowest life insurance quote because the insurer will have enough information to price the policy accurately.
- Accelerated underwriting is similar to traditional underwriting but does not always necessitate a medical exam. It is also faster because it assesses the risk of applicants using data modeling. Often, you can apply online, and the insurer will instantly gather data from third-party sources, allowing you to be approved for coverage in minutes. Quotes are comparable to fully underwritten policies, but coverage amounts are typically limited to $1 million.
- Simplified issue: Purchasing simplified issue life insurance is a quick and simple process. Applicants must only answer a few questions about their health and lifestyle, and insurers will gather additional information about them from third-party sources. Because no medical exam is required, insurers can often decide whether to accept or reject applicants immediately. However, because insurers have less information about applicants, rates for simplified issue policies are higher.
While some insurers may require you to take a life insurance medical exam, more and more insurers are able to rely on data modeling to assess risk and offer no-exam life insurance to young, healthy applicants.
It is critical to take the medical exam seriously because it will influence the life insurance quote you are given. Here are some pointers to help you prepare for the life insurance medical exam:
- Limit salt intake, drink plenty of water, and eat a healthy diet rich in whole grains, fruits, vegetables, and low-fat dairy products in the weeks leading up to the exam. Limiting your alcohol consumption is also a good idea.
- Avoid alcohol, nicotine, and red meat the day before the exam. You should also avoid over-the-counter medications such as antihistamines and decongestants. A good night's sleep will aid in the reduction of your blood pressure.
- Avoid caffeine and strenuous exercise on exam day, and drink plenty of water. Check that you have all of the necessary documentation, such as a photo ID and medical information.
How to Choose the Most Appropriate Life Insurance Policy for You
The best life insurance policy for you will be determined by your financial objectives and the reasons for purchasing life insurance. So you'll need to assess your financial situation to determine what you already have in place to support loved ones who financially rely on you and what needs you should cover with life insurance.
A term life policy will provide the coverage you need at an affordable rate if you want a policy that will provide financial protection for a specific period of time (such as while your children are young). A whole life or universal life policy may be a better fit if you want coverage that lasts a lifetime and provides cash value that you can access while you're still alive.
Consider working with a financial planner to review your situation and determine which type of life insurance will fit into your financial plan. The National Association of Personal Financial Advisors can help you find a fee-only planner. Alternatively, as part of your benefits package, your employer may provide you with access to a financial professional.
Terminology of Life Insurance
- Beneficiary: The person or organization designated to receive the proceeds of a life insurance policy in the event of the insured's death.
- Cash value: Money accumulated in a permanent life insurance policy that can be accessed while the insured is still alive via a policy loan, withdrawal, or policy surrender.
- The amount of coverage purchased, such as $500,000 or $1 million, is referred to as the face amount.
- The individual whose life is insured by a life insurance policy.
- Death benefit: The sum paid to the beneficiary upon the death of the insured.
- The legal document details the terms of a life insurance contract.
- Policyholder: The person who owns a life insurance policy, also known as the policy owner. This person is in charge of paying premiums. The policyholder is not required to be the insured. Someone, for example, could have a policy on their husband.
- A premium is a one-time or recurring payment made to keep a life insurance policy in force.
- Rider: Additional insurance coverage that can be added to an existing policy (typically at an additional cost).
- Underwriting is the process by which life insurance companies gather information about applicants in order to determine whether or not to insure them and what rate to charge.
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