Life insurance is not something many like to think about… but if you have dependents who rely on you for financial support, then life insurance is really about protecting them in case something happens to you.
We have a lot of people asking us about life insurance, so we asked our team of specialists to give us the cliff’s notes on the essentials of life insurance… this is what they said:
Life insurance is not the same as mortgage insurance purchased through your lender when you bought a home. The bank only covers the balance owed on a mortgage if something happens. But your mortgage isn’t the only expense your family will have to take care of if you pass away – there are cars, college education, food, medical expenses, funeral cost – the list goes on. Life insurance purchased through a life insurance advisor can cover those for you.
When it comes to life insurance, you have two choices: term life insurance and permanent life insurance. Both are great choices that protect you and your family, but each has different features. Deciding what’s right for you depends on what you need.
Term vs Permanent
Term life insurance – is temporary, and initially lower-cost insurance coverage, where your payments stay the same for a set period of time. When that time’s up you can renew your coverage or switch it to permanent life insurance without having to answer further health questions.
Permanent life insurance – also helps protect those you care about and provides you with more security because it lasts a lifetime. Initially, it costs more than term life insurance but includes features that can grow money – tax-sheltered – inside your policy over time (called cash value). You can access this money while you’re still alive to help you achieve what you’ve always wanted – more retirement income or perhaps to start your own business – or leave a larger legacy for those you care about.
How life insurance premiums are calculated
When applying for life insurance, the insurer will determine your health status based on your age, gender, smoker/non-smoker and overall health. Since women statistically live longer than men, their premiums are lower. Plus, the younger you are, the lower the premium. These factors are not controllable. Your lifestyle, engaging in dangerous activities and having modifiable health issues (such as diabetes) will increase your premium.
Keep your policy up-to-date
Make sure to set aside some time each year to review your policy and ensure that the limits and coverage you have selected are right for you. Evaluate your needs based on your household needs, your health, your age, the money you have in savings and the amount of risk you feel comfortable taking. Then, make sure to read the entire insuring agreement—especially the exclusions—to guarantee that you are covered in every situation that is necessary for your lifestyle. If you have questions about your life insurance policy, contact Schill Insurance today.
Here is a helpful glossary of the most common terms:
Beneficiary: The person or party named by the owner of a life insurance policy to receive the policy benefit.
Cash value: The savings element of a permanent life insurance policy that represents the policy owner’s interest in the policy.
Contingent beneficiary: The party designated to receive proceeds of a life insurance policy following the insured’s death if the primary beneficiary predeceased the insured.
Convertible term insurance policy: A term life insurance policy that gives the policy owner the right to convert the policy to a permanent plan of insurance.
Dividend: A return of part of the premium.
Face amount: The amount of the death benefit payable under a life insurance policy.
Irrevocable Beneficiary: A life insurance policy beneficiary who has a vested interest in the policy proceeds even during the insured’s lifetime because the policy owner has the right to change the beneficiary designation only after obtaining the beneficiary’s consent.
Insurable interest: The interest an insurance policy owner has in the risk that is insured. The owner of a life insurance policy has an insurable interest in the insured when the policy owner is likely to benefit if the insured continues to live and is likely to suffer some loss or detriment if the insured dies.
Insured life: The person on whose life the policy is issued.
Original age conversion: A conversion of a term life insurance policy to a permanent plan of insurance at a premium rate, based on the insured’s age when the original term policy was purchased.
Permanent life insurance: Life insurance provides coverage throughout the insured’s lifetime and also provides a savings element.
Policy anniversary: As a general rule, the date on which coverage under an insurance policy became effective.
Premiums: Amount paid to the insurance company to buy a policy and keep it in force.
Renewable term life insurance: A term life insurance policy that can be renewed at the end of the policy term.
Term life insurance: A life insurance policy which provides a stated benefit upon the holder’s death, provided that the death occurs within a certain specified time period. The policy does not build up a cash value.
Universal life insurance: A type of flexible permanent life insurance offering both term life insurance as well as a savings element, which is invested to provide a cash value buildup. Elements can be reviewed and altered as a policyholder’s circumstances change.
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