What is life insurance?
Life insurance policies involve you making premium payments in exchange for a death benefit, a lump sum payment from the insurance company to your family and loved ones on your death. The purpose of life insurance is to provide financial security to your loved ones after your death.Life insurance policy help you to get yourself insured and save money for your loved ones. Buying suitable and cheap life insurance.
The life insurance policy you opt for depends on your goals, needs and financial situation. Life insurance policies have three components.
This is the amount of money you pay for the insurance policy. The amount you pay mostly depends on the coverage you want, the policy you opt for and the risk you pose. The risk is associated with
- driving history,
- health history
- area where you live
This is the amount the insurance company guarantees your beneficiaries receive on your death. You decide the death benefit based on your needs.
This has two purposes. It serves as a savings account that you can withdraw from during your life. Some life insurance policies may restrict withdrawal based on the use of that withdrawn money. The other purpose is to provide insurance as you age.
Do I need life insurance?
Some of the reasons why you should consider a life insurance include:
- It covers household incurred expenses
- It aids in paying off a mortgage
- It can be used to make up for lost income in case the bread earner passes away
- It guarantees adequate income at Leaving behind an inheritance, in case of death
- It can be used to cover funeral and burial costs
Which life insurance policy you go for depends on:
- Your health
- Your financial status
- Number of dependent family members
- Your state. As insurance policies vary state to state
What are the types of life insurance?
There are three basic life insurance types. All are discussed briefly below.
Term life insurance
Term life insurance offers financial protection for a specified time period. During this time period, the premium amounts stay the same. Once that time period expires, you can still continue with the policy but often at a higher premium rate. Term life insurance mostly costs less than permanent life insurance.
It may be used as potential income while you’re working. It provides the safety net that ensures all your financial needs are met. The benefits are paid in one lump sum instead of regular payments.
Universal life insurance
Universal life insurance provides lifetime coverage. Its policies are flexible so you can lower or raise your premium payments throughout your life. Since it offers lifetime coverage, its premium cost more than term insurance.
Universal life insurance may be used as income replacement, death benefit coverage or strategy planning to preserve wealth to be transferred to beneficiaries. What it focuses on depends on the insurance policy you opt for.
Whole life insurance
Whole life insurance provides lifetime coverage. Since it offers lifetime coverage, its premium cost more than term insurance. Premium payments are fixed. You can use the cash value as a savings account.
Whole life insurance can be used in estate planning to preserve wealth to be transferred to beneficiaries.
How is cost determined?
This depends on a factors like the coverage type you want, the type of policy you get, and the risk you pose. According to Policygenius, the average American pays about $300 to $400 annually for life insurance. This amount may vary depending on your situation. But generally, the younger you are the less it costs.
Life insurance companies have risk related categories or rate classes that determine your premium payments. This does not affect the amount or length of coverage. Rate classes are determined based on factors like
- family medical history
- overall health
For example, if you are a tobacco user, you pose a higher risk; therefore your premiums may cost more than those of a non-tobacco user.
How do I save money?
Shopping for life insurance can be daunting especially when you don’t know what you are looking for. Here are a few guidelines on how you can save money on purchasing life insurance.
Go for term insurance
Unless you have a specific condition that calls for another option, term insurance is usually the best option for the majority. It has a hard expiration date, no cash value, and is less expensive than other options.
This will save you from paying higher premiums in the future. Insurance costs more as you age and the number of insurance companies willing to take you may substantially decrease if you have a health condition. Your 30s is the best time to buy life insurance, according to Noexam.com. According to Business Insider, the average cost of life insurance increases by 63% between the ages of 30 and 40.
Don’t hide any health issues
This will save you from unwanted surprises down the road. Don’t even hide minor issues like slightly high blood pressure even if it doesn’t require medication. Another reason for being transparent is that it will help your agent match you with the most competitive insurer. Some insurance companies are more accommodating for people with certain health conditions, like diabetes or cancer.
It saves you money. With life insurance, you can pay your premiums every month, every quarter, every 6 months or every year. Although paying frequently may seem a lot easier and budget friendly, but many companies charge an extra fee for it. Some insurance providers offer discounts as high as 8% for paying annually.
As for reevaluations
If your insurance policy requires you to pay more because you have a certain health condition, you can ask for reevaluation if your condition improves. Many insurance companies do reevaluate if you have sustained better health for at least a year.
Go for agents that work with multiple insurance companies
It saves you time and increases your chances of matching with a better life insurance company. You won’t have to contact different companies individually. Your agent will compare and present to you the different insurance quotes relevant to you.
Watch your weight
Life insurance companies may charge you higher premiums if their calculations declare you overweight.
Life insurance companies may get your vehicle report to see many speed violations you have. If they think you have more than a certain number, they will increase your premium because you are at a higher risk of getting into a life threatening accident.
Do well on your medical exam
Many insurance companies require you to take a medical exam before they insure you. The purpose is to make sure that there are no medical red flags. Here’s what you can do to make sure the medical exam goes well:
- Try fasting a few hours before the exam
- Avoid caffeine and alcohol a few days before the exam
- Stay away from food that has high salt and fat content for at least a week before the exam
Don’t go for guaranteed insurance if you are healthy
There are some life insurance companies that ask no health questions, require no medical exam and guarantee acceptance as long as you meet the age requirements. But these “guaranteed insurance” policies have a catch:
- More cost per month. Since these companies are taking a greater risk, they charge more.
- Low amount of death benefit.
This should be your last resort if no other insurance policy works for you due to your medical condition or other reasons.
Don’t waste time comparing brokers
Life insurance costs are regulated, so you will only be wasting time and energy. You will get the same price if you shop from a broker or go directly to the insurance company.
Insure the right amount
The more amount you want, the higher premiums you will have to pay. So if your family will be okay with $200, 000 don’t opt for the $500, 000 insurance policy.