A Beginner's Guide to Life Insurance

A Beginner's Guide to Life Insurance


Life insurance can be confusing, especially if you’re new to the concept and market, but it doesn’t have to be that way. This beginner’s guide will help you understand what life insurance is, how it works, and how you can use it as part of your financial planning strategy to better prepare yourself and your family for the future. We’ll also give you tips on how to make sure you get the right life insurance policy for your needs. Here’s what we’ll cover in this article

 

A Beginner's Guide to Life Insurance


Types of Life Insurance

There are several types of life insurance and it can be difficult to determine which is best for you. The most common type of life insurance is term, but if you have a young family that relies on your income, consider permanent insurance instead. Other options include universal life insurance, variable universal life insurance and immediate annuities. Whichever policy you choose, make sure it meets your needs—and that means understanding how much coverage you need and what options will cost you in terms of monthly premiums. It’s also important to read up on what happens if you pass away while covered by a policy—the death benefit may be able to pay off loans or provide liquidity for family members depending on what type of policy it is.


Why do I need Life Insurance?

When it comes to protecting your family, life insurance is one of your most important tools. If you die prematurely, it can help ensure that a loved one does not suffer financial hardship as a result. Without adequate coverage, for example, your spouse might need to work an extra job in order to make ends meet or cut back on necessities in order pay off high-interest credit card debt. That’s why no matter what stage of life you’re in—whether you have a newborn or are saving for retirement—it’s important that you have some form of life insurance. After all, if something happens to you and there isn't enough money coming into your household, nobody wins.


How much do I need?

If you have a family that depends on your income, or if you are responsible for financial obligations such as a mortgage or college tuition payments, it’s important to get enough life insurance coverage. Be sure to ask your agent how much coverage is appropriate in your situation. In general, you should carry enough life insurance so that your surviving dependents will be able to maintain their standard of living after you die—including paying off any debts and continuing forward with any expenses related to running a household (such as food and utilities). It may also be wise to take out additional coverage if there is an inheritance involved: Your family should not have to pay taxes on funds they don’t receive. The exact amount of life insurance you need will depend on your individual circumstances.


How Much Does It Cost?

How much life insurance do you need? The answer is simple: enough to make sure your family won’t struggle financially if you were to die. But how much that enough actually is depends on a number of factors, including your age, how many dependents you have and your current net worth. Because term life insurance is priced on a per-year basis, it can be expensive as people age and their annual premiums increase. That makes whole life more attractive for older individuals—it’s priced at a flat rate until death and remains constant no matter when that happens. But it also means it costs more than term for younger folks since you’re essentially paying for coverage over a longer period of time.


Do I Need Term or Whole Life Insurance?

When it comes to deciding between term life insurance and whole life insurance, there are pros and cons for each. Whole life insurance policies have a cash value that builds over time, whereas with term policies, you’re paying monthly premiums but that’s it. Term is great if you want a simple way to protect your family in case something happens to you, but since a term policy lasts only as long as your payments do (typically 20 or 30 years), they can be costly in comparison. A cash-value whole life policy may be best if you need long-term protection and like the idea of having more assets after it matures than with a typical term policy.


Am I Eligible For Any Discounts on my Policy?

The older you are when you buy life insurance, typically the more expensive it will be. But there are plenty of ways to save money. For example, if your weight is unhealthy (i.e., you have a BMI greater than 40), you could get a discount on your life insurance policy, as obesity increases health risks and contributes to premature death. In addition, some companies give discounts for regular fitness, like running marathons or competing in triathlons. If you don't smoke either, that can also shave some money off your premium—good news for those trying to lose weight who want to do so without cutting back on beer!


Is there a way to Lower My Costs?

If you have a clean bill of health and aren’t at high risk for health-related issues, you may qualify for lower rates—which can translate into thousands of dollars in savings over time. Ask your agent about standard or ideal rates based on your health history. If you’re planning on having children soon, it may be worth getting a separate policy if there is any chance that your future kids will have pre-existing conditions or medical needs (or their genetic predisposition). Also keep in mind that families with a life insurance policy often qualify for discounts on other types of coverage such as car insurance and homeowners/renters insurance. Shop around!


Additional Resources

The one thing that many people forget when they’re thinking about life insurance is that you don’t have to buy a policy while you’re still in good health. In fact, it makes sense to purchase coverage earlier rather than later. However, once you are out of school and your student loans are paid off, it’s a good idea to take stock of your current financial situation so that you can make sure your policy covers all of your bases. That means determining how much coverage you need as well as figuring out what type will work best for you.

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