Nearly All adults have heard of life insurance and most understand its basic purpose – to provide financial support in the event of death. Yet, many people do not understand its intricacies or invest in a policy; one in every four adults does not have life insurance. Life insurance is not only important, but in many situations it is necessary. If there are people in an individual’s life that wouldn’t be able to survive financially without his or her income, life insurance will protect those dependents or beneficiaries. Because of its importance, it is crucial to understand the basics of what life is and how it works.
Life insurance, like all other types of insurance, is contractual in nature. It requires that the policyholder pay a premium in return for a death benefit to your named beneficiary (typically a spouse, child or other loved one). Upon the passing of the policyholder, the beneficiary is required to file a claim with the insurance company with proof of death, such as a death certificate. The insurance company will then process the claim and the beneficiary, under normal circumstances, will receive the death benefit.
There are two main types of life insurance: term life insurance and permanent or whole life insurance. Each type of life insurance has different policies and features; which each individual should choose varies by circumstances and needs.
Term life insurance, as the name suggests, provides coverage for a specific amount of time; at the end of the term, the policy has no value. Common terms are 10, 20 or 30 year term policies. Policyholders have the option to choose the term length; however, if death does not occur during the term, the beneficiary does not receive the death benefit. Because it is temporary in nature, it typically has good coverage for a low cost; premiums are typically guaranteed for a portion of or the entirety of the term.
Term life insurance is a popular choice for people who are looking for coverage only for a specific time frame, such as until retirement or emancipation of children. It is also popular with millennials, as a way to cover funeral expenses or coverage protection while paying off student loans or a mortgage. Young parents or single parents typically need the longest term, while a single individual with no dependents would likely require a shorter term.
Whole life insurance provides coverage for the entirety of the policyholders life on the condition that premiums are paid. Premiums are typically more expensive than those of term life insurance policies and remain level; however, people often view a whole life policy as an investment. Whole life insurance policies typically have a “cash value” since a portion of the premiums paid are invested by the insurance company, a tax-sheltered way for a policyholder to make money. The cash value can be borrowed against, withdrawn or invested. Other than the cash value, whole life insurance policies also have a “face value,” which is the amount paid to the beneficiary at the policyholder’s passing.
Whole life insurance is a popular choice for people who are older or people with no dependents, such as empty nesters and retirees. While empty nesters may have emancipated children, that does not mean that insurance coverage should end as young adults are typically still financially tied to their parents and the policyholder is likely still working. Retired senior citizens need the least amount of coverage but a small plan could help cover a spouse upon the policyholder’s passing or help to supplement retirement income.
Life insurance premiums are determined based on the specific applicant. Generally, the younger and healthier the individual, the lower the premium. Insurance companies look at factors such as age, gender (females have a longer life expectancy and therefore lower premiums), a medical exam and blood work, family medical history, lifestyle (smoking, drinking, hobbies that involve risk), marital status and place of residence.
The reason approximately seventy-five percent of adults do not have health insurance is obvious: to face one’s mortality is not a happy or desired task. However, it is important to evaluate financial needs of a family and determine what is needed in the event of death; although unpleasant, it will guarantee that a family can mourn without the stress of financial strain. If you are unsure which life insurance policy makes sense for you and your needs, contact Insure Hub Online, a top Long Island life insurance agent, today to get started and receive a quote.
