Life insurance is a type of protection that everyone should have. Many people believe that life insurance is only important for those with young families, but that's an idea that could not be further from the truth.
Much like health insurance, life insurance is meant to protect you and your family from overwhelming expenses. There are several types of life insurance to consider and a wide range of costs associated with this service.
How Life Insurance Works
The basic idea of life insurance is very simple. You take out a policy on yourself or a family member. The insurer agrees to pay out a specific amount if the person named on the policy dies while the policy is still active. Rather than trying to save enough money for your family to live on if you die, life insurance permits you to make small payments over the course of a lifetime or a set time period. The money paid out by life insurance can be used for funeral expenses, living expenses, payment of debts, and other associated costs.
The U.S. government notes that there are two main types of life insurance. The first is term insurance. When you purchase term life insurance, you select a period of time during which the policy will be active. You may purchase term insurance that lasts between 10 and 30 years. Some plans renew on an annual basis. You pay your monthly premium for the duration of this period. If you die during this term, the value of your policy is paid out to the listed beneficiary. Once the term ends, the policy has no value and the company does not pay out anything in the event of death.
Some people choose to get more long-lasting coverage by purchasing permanent insurance. Unlike term life insurance, permanent insurance covers you for the rest of your life if your premiums are paid on time. This policy builds value over time. Part of each monthly payment goes into a cash fund. This feature provides additional benefits as you age. You may be able to borrow from your life insurance fund to cover other expenses if you have invested enough in it.
The U.S. Department of Health and Human Services suggests that life/long-term care insurance is becoming more common. This third option pays in the event of death or in the event of confinement to a nursing home.
One of the main concerns of people purchasing life insurance for the first time is how much it will cost. There is no one correct answer to this question. Life insurance varies quite a bit in cost. Factors that are used to calculate the cost of life insurance include overall health, occupation, the results of a health exam, gender, and age. Those in good health and who do not work in high-risk occupations are likely going to pay much less in life insurance costs than those who work in risky jobs and lead unhealthy lifestyles.
Age is one of the most important factors listed above. The younger an applicant is, the less likely they are to pass away during a life insurance term and require payout. An elderly applicant may have to pay a considerably higher amount for the same insurance because of the increased risk of death.
Costs are substantially different for term life insurance policies and permanent life insurance policies. Trusted Choice reports term life insurance costs as low as $26 per month for young, healthy females. They report an average cost of $167 per month for permanent life insurance for the same demographic group.
Where You Can Get Life Insurance
Either term insurance or permanent insurance can be obtained in several different ways. Quite a few employers offer life insurance as an employee benefit. These plans may pay out the value of an employee's salary for several years. They often provide smaller payouts for the death of a covered family member.
Independent insurance agents are another resource to consider. These agents contract with a number of insurance providers to provide you with different options that are in line with your budget and lifestyle.
You may also go directly through an insurance company. Agents at an insurance company can help you select from one company's lineup of products. If you carry another type of insurance through the same company, you may qualify for discounted rates.
Veterans can apply for life insurance through the U.S. Department of Veteran Affairs. This option tends to be less expensive than other programs. It also pays in the event of death that occurs during deployment or overseas, a feature that many traditional life insurance policies do not offer.
Benefits of Life Insurance
People choose to forego life insurance for many reasons. It can be difficult to purposely take on another monthly expense when it is already challenging to make ends meet. The benefits of life insurance makes this an expense that you should consider.
Life insurance can safeguard your family from financial ruin if you die unexpectedly. Funeral and burial expenses can be extensive, and life insurance protects your family from having to worry about money while trying to simultaneously grieve a loss.
You should also consider life insurance if you have dependents who rely on your income. If you have a spouse who works part-time or does not work outside the home, life insurance may give them time to come up with a plan and get back on their feet. A spouse may use the money to return to school, update their career skills, or pay off debts and minimize monthly expenses.
Term or permanent life insurance has significant advantages for policyholders with disabled dependents. Dependents with severe disabilities may need care far beyond the age of 18. Life insurance may offset these costs and allow them to get the quality of care that you want them to enjoy.
It may not be fun to think about life insurance. Who wants to think about dying before their time? Part of planning for the future is planning for worst-case scenarios. Life insurance is one tool you can use to protect your family and give yourself peace of mind.