YES, You Might Need Life Insurance! Or, Do You?
Financially speaking, two types of people roam on earth—those who need life insurance and those who don’t require any kind of life insurance. While many people do not need it, most do. And the most are people who have their wives, children, grandchildren or parents as dependents. You need life insurance if you are one of those 69% Americans who can save less than $1k a month. Or, even worse, if you are one of the 34% Americans who have no savings at all, life insurance is a must for you. (Statistics Source: Gobankingrates)
Close your eyes and remember each of the faces that loves you and that you love. Think of tomorrow morning when you cannot be by them. Death is that uncertain, isn’t it? What will happen to them? Let’s not imagine it. Think instead, what can be done?
The answer to your question is — life insurance. And life insurance companies are places where you can find the solace, if not solution, to your worries for tomorrow’s tomorrows. They are there to help you to ensure everything is going to be alright even if you pass away tomorrow. Their product, known as life insurance, is meant for you.
In this post we will throw light on the basics of life insurance.
What Is Life Insurance?
Simply put, life insurance is a financial arrangement between an insurer and you. You sign a contract with a life insurance company that, when you die, they will pay an agreed upon amount of money to your chosen people. This contract is known as your life insurance policy.
The paying out thing, however, depends on the nature of the contract you sign. It may be valid for a certain span of time or, as we have already mentioned, for the entire of your life.
Instead of taking the core idea granted literally true, we would like to warn that you remember there are terms and conditions that play an important role in the conversion of the payout.
What Are Its Major Components?
A life insurance has these 4 key components:
Policyholder: When you make purchase of a life insurance policy, you are the policyholder. You are also called the insured.
Carrier: The insurance company you sign the policy agreement with.
Policy: Policy is the contract that you purchase from the insurer.
Beneficiary: Beneficiary is the person you choose to get the benefit after your death.
(Choosing the beneficiary being a very crucial issue, we recommend that you read our article Life Insurance Beneficiary: the 12 Don’ts.)
Other Important Aspects to Understand
Other important factors of a life insurance policy that you should know are:
Coverage is the amount of money you sign the contract for. It also bears names like face value amount or death benefit that the beneficiary will receive on your passing away.
Life insurance premiums are the cost you pay regularly to the insurer for the policy to stay alive.
Your policy goes into lapse when you do not make payment of your premium. This may lead the policy to go invalid.
Grace period is the time, usually 2 to 3 months, until when you can repay the premium after the policy has gone into lapse and thus resume the policy.
Waiting period is the time bracket, your beneficiaries will not get anything even if you die. Usually the waiting period consists of the first two years of the policy life. The insurer will only pay back the premiums to the beneficiaries if you die from any natural cause. This waiting period may vary from company to company or policy to policy. This may also vary from state to state.
Riders are additional benefits that you buy as extras to your main policy. They are not an integral part of the policy. For example, if you have the waiver of premium rider, you do not have to pay premium (until some time) if you are totally disabled. There are several types of riders but it is wise to remember that each brings with them certain terms and conditions that you should know well before purchasing.
The Types of Life Insurance Policies
The main types of life insurance policies fall into 2 groups: term life policy and whole life policy.
The term life insurance policies defend you for a certain period of time. They usually come in 10, 20, 30 year terms. Annual terms are also available on the market. This type of policy is generally cheap in view of the huge amount of money that comes as death benefits. Your chosen people can avail of the death benefit if you die within the term. Or, they receive nothing at all.
On the other hand, the whole life insurance policy remains active throughout your lifetime. That means whenever you die, your beneficiaries will get the death benefit or coverage. Of course, you have to keep paying your premiums for it to remain active.
Whole life has another aspect ingrained into it. It not only provides coverage to you but also provides you a passage for passive income.
Which Type Is the Best?
It is a teaser for many, especially when they go to buy life insurance for the first time. Our answer to this question is rather technical, like many give. The best-ness actually depends on your life situation or what you need or want. If you need life insurance for a specific time period, term is your choice. So, it could be useful when you are sure your folks will live ‘secure’ after a certain period. Also, it is good if you have liabilities like loan or mortgage to repay witin a period.
It is notable that term insurance is the most popular of all life insurance types. And it has reasons. The biggest reason is, it is damn cheap compared to whole life insurance. Monthly costs for this policy often go as much as a dozen donuts from Dunkin’s. It is easy to understand and get as well.
Whole life, you have already known, covers you not only for lifetime but also has an income generation side. As a result, its price is huge. In comparison with term life, it costs you 10 or even more times than term life insurance policy.
How Many Beneficiaries Can You Choose?
You can choose multiple beneficiaries if you want. But there has to be only one principal beneficiary.
How to Choose Best Life Insurance Policy?
There are various ways you can choose the best life insurance policy for yourself. Getting ideas about the companies, products and price are a good way. You should also compare and contrast the prices that companies offer.
How to Choose Best Life Insurance Company?
Choosing best or companies that sell life insurance cheapest company is pretty easy these days. Every company website has their ratings on their pages. You can also check their authenticity by clicking on the ratings sources.
But, it is worthwhile to remember that the best policy for you may not come from the best-rated company. Even an average company may have the best offer for you. It is intelligent to remember that life insurance companies offer no service.
So, there is little reason to think that you will have the best service in exchange for the highest rates.
What Should You Look before You Buy a Policy?
Each life insurance policy comes with a lot of terms and conditions. Before you go for one, you should not forget checking and understanding them clearly.
How Should You Buy a Policy?
There are two ways you can buy life insurance policy: online or offline.
If you opt for online, you can visit any online life insurance agencies and their paid staff will keep in touch with you and help you out.
If you go offline, you have to find an agent in your area. He will assist you.
Remember, there are two types of agents, company-related and company-independent. Company-related agents sell only their own products. So, your choice with them is naturally limited.
On the other hand, company-independent agents sell products from different carriers. It is possible to get the best or cheapest rates and easiest terms and conditions from them.
Is An Agent Necessary?
Agents are people that work as a bridge between the insurance company and you. Though they are often derided as commission takers, they play an important role in helping you understand the policy you need or choose. As mediums they may prove useful especially when you are buying life insurance for the first time. Life insurance being a financial issue, it is not bad to seek their help when you need to understand the matter.
Even though many claim they will get you insured without the agent nagging behind you, it is practically pretty impossible in most cases. Even if you go online shopping for a policy, there will be an agent to contact with you. Companies will refer you to agents. So will the agencies do.
The fact is ‘no-agent prophets’ themselves are brokers.
Can You Be Refused?
Yes, you can be refused if you have vulnerable health issues, criminal or bankruptcy records. You can also be refused if you have crossed certain age band. For example, if you are 70 and want a term life policy for 20 years, you are not going to get it.
What to Do If Refused?
Refusal is not the last word for you. Different insurance companies have different underwriting criteria. So while you are rejected by one insurer, chances are you may be signed up by another company. Besides, if you have most sensitive issues which you know might lead you to rejection, there are options for small-scale coverage like guaranteed issue life insurance which you may consider buying.
How Does the Beneficiary Get the Benefit?
When a policyholder dies, the beneficiary needs to collect the death certificate, get it duplicated with attestation. Then he/she downloads the claim form from the company site and submit it to the Claims Department (CD) of the concerned carrier. The original copy of the policy has to be submitted to the CD.
It is mentionable that the agent can be a useful aide in the process.
How Is the Benefit Provided?
There are different ways the beneficiary can get the benefit. But often it depends on the decision of the beneficiary. He/She can get the lump sum at a time or leave it with the insurer to generate interest and get it. He may also choose to receive the proceeds at intervals with interests. It is also possible to use the money to get lifelong benefit.
How Long Does It Take to Get the Benefit?
That depends on your specific situation and stand. By situation, we mean if you do not have issues that the insurer may object to, it will take from 10 to 14 business days to get the benefit.
There are several options for you to receive the benefit. If you are the only nominee and want to get the total benefit at a time, it is going to take less time. However, variable by state laws, a claim settlement procedure can take up to 60 days.
Is Life Insurance Necessary?
Life insurance is a precautionary step against the uncertainty of mortality of life. For most people, life insurance has its need because most people cannot ensure financial security for their dependents. As a result, their life becomes tough when the breadwinner dies. The situation gets even worse when the breadwinner leaves behind loans or mortgages.
There is a general insurance-phobia in the society. Although not always ungrounded, life insurance is not unnecessary for majority of the people who know there are rains out there when folks of love may need the umbrella of protection. In place of sharing the hate, we suggest that you better investigate into the needs for yourself in view of your financial status, liabilities, and responsibilities. Many people think that life insurance companies do not pay while the fact is 99% (source: Insuranceclarity) of the claims are said to be paid. The fact is 100% whole life polices make a payout as the insurer are legally bound to follow their contract. Term life policies are where the policyholders get nothing mostly. And it is, in fact, a matter of choice that policy buyers choose. We think it is good to have a well-calculated term life insurance for people who have financial insecurities.
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