Perhaps you know next-to-nothing about life insurance--the terms, the angles, the advantages and disadvantages. And you wouldn’t be alone.
Today we’re bringing you three quick life insurance tips: we’ll break down the basic terms you need to know, look at how much insurance you need, and explain the differences between the two main types of life insurance.
Let’s get started!
Life Insurance In A Nutshell
Though different forms of life insurance have been around since the days when the Roman Empire was still kicking, insurance as we know it really began in the mid-1800s. It’s a formal contract between the insured and the insurer that states a lump sum of money will be paid out at the insured’s death, or after a set period of time--given that the insured pays their premium, that is.
Most people choose between $100k to $250k for their death benefit. How can insurance companies afford to promise all of these extravagant sums? Well, it turns out that your high school statistics class was good for something.
Underwriters use the law of large numbers to determine the probability that they’ll be paying out these grand death benefits. Obviously, they bet that the majority of people will not need to cash out before the end of their term (if they have term insurance) or within the first, say, ten years of their whole term insurance policy.
If this was more likely (say, the member in question had pre-existing conditions, poor health, or was considerably aged), then they would adjust for this likelihood either by increasing premiums across the board (which naturally occurs over time) or by denying the potential member.
How Much Life Insurance You Should Buy
Most people purchase between $100k and $250k of life insurance. Typically, the age and amount of children, the salary a spouse does or doesn’t make, and the cost for daily living will determine the appropriate amount.
It’s a good idea to keep in mind funeral costs, charitable donations, and educational funds, amongst other costs and concerns that go beyond the typical lump sum payout.
*Keep in mind that the example chart above does not account interest rates or tax brackets.
Whole vs. Term Life Insurance
Life insurance is a financial tool, but it’s not the only one.
If you’re not yet familiar with what whole life or term life are, the basic split comes down to this:
You pay for whole life until you die. As long as premiums are met, you’re covered. As you continue to pay premiums, you accumulate cash value. It’s similar to how some credit cards will reward you with a small kickback for continually paying your bills. With whole life, you are guaranteed a payout at death and the death benefit is dispersed to your chosen beneficiary (whether that be your heir, estate, foundation, etc). They will also receive that accumulated cash value. It sounds a bit like a handy savings account is tacked onto your insurance contract--and what’s more, the payout is guaranteed. Sounds nifty, right?
On the other hand, term life is only guaranteed for the term chosen. Say you want to make sure your family is covered if something should happen to you within the next 10 years. You pay your premiums for those 10 years, but if something happened to you, say, 11 years after the policy, your family would receive zero coverage. However, term insurance tends to be cheaper in the long run and statistics are in your favor if you’re covered from the years 35-45, if such is the case.
What Does Your Perfect Life Insurance Policy Look Like?
This blog is just getting started--but if you have any more questions on today’s article, feel free to reach out to our friendly staff and to stay tuned for future posts!
Ready to get a free, quick quote today? We’d be happy to help you find your perfect life insurance policy. At Health Benefits Now, we believe in helping people come to their best decisions regarding healthcare coverage.
We can’t wait to get started!