Everyone understands the importance of auto and home insurance. They protect some of the biggest assets you’ll ever own but they don’t protect your most valuable asset: yourself. That’s right, you are your most valuable asset. A Life Insurance policy protects you the people that are closest to you.
The most common questions I get are, “What are my options for coverage?” or “What does it cover?” and “How does life insurance work?” This blog attempts to answer those questions.
The most expensive day of your life is the day that you die. All your debts are due along with the added expense of a funeral. If you have a home or family those expenses can increase dramatically. The purpose of life insurance is to provide financial stability to the people left behind. In the broadest sense, life insurance can be broken down into two types: Term Life Insurance and Whole Life Insurance. Both have their advantages and both have their purpose. When choosing a life insurance policy it’s important to know the difference between them to help you make the best decision. When differentiating between Term Life Insurance and Whole Life Insurance think of it like the difference between renting and owning a home.
LIFE INSURANCE OPTIONS
Term Life Insurance is like renting in the fact that you pay a premium for a period of time and are covered during that time period. While you’re paying your premium you have coverage. When your “Lease,” is up the policy ends. Typically, a term life insurance policy will last for 10, 15, 20, or 30 years. Term Life Insurance is great for temporary expenses you wanted covered by life insurance. The best part is that it tends to be inexpensive. In fact, most people don’t realize how affordable it can really be.
The second option is Whole Life Insurance. Whole Life Insurance is like owning a home. You pay your premium every year and the policy stays in force for your entire life. One day your loved ones will receive the benefit, as opposed to the term policy when the insured has to die during the policy period. Whole Life Insurance is better coverage for long-term needs. Also, like home insurance, some Whole Life Insurance policies build “Equity,” or as insurance agents call it, “cash value.” This cash value can be loaned against or, if the insured decides to end the policy, cashed out. This makes a Whole Life Insurance policy a great option because of the potential living benefits it provides as well as the guaranteed death benefit.
WHAT DOES LIFE INSURANCE COVER
Life Insurance provides a death benefit for the insured. How that money is used is up to them but, typically, people will use this money to cover expenses and prepare their family and loved ones for a future without them as well as a few other uses.
Chances are you have some debt such as credit card loans, student, vehicle, a mortgage or other debt. Most people don’t want these debts to pass on to someone else when they die. Life Insurance is great to help you cover these liabilities. Most debt is temporary, this makes Term Life Insurance the perfect product to cover your loans and liability. For example, a 30-year term policy is common to purchase in the amount of your mortgage to make sure if anything happens to you your mortgage is paid and your family isn’t displaced.
Whole Life Insurance has its place as well. It is perfect for covering permanent expenses. Everyone will have funeral expenses. The average funeral costs anywhere from $10,000-$25,000 dollars. Additionally, any money you have in accounts can be frozen until a death certificate is produced or tied up in a will. Sadly, many families have a hard time coming up with money for a proper funeral. Other long-term priorities could include putting your children through college or leaving an inheritance. If there are people dependent on your income, you need to consider leaving 5-10 years of income to account for the difficulty in adjusting to a life without you and your income. Part of the discussion should be if you want to consider an emergency fund for unforeseeable scenarios. Lastly, some people choose to leave money behind for a charity or cause they supported in life.
HOW DOES LIFE INSURANCE WORK?
The most common question I receive from curious clients is “How does Life Insurance work?” The answer to how does life insurance work isn’t a simple one. An Insurance company uses analytics to determine your premium. They take into account factors like your sex, age, health, or whether or not you smoke. The younger you are when you purchase a policy the less it costs due to the policyholder’s life expectancy exceeding that of an older policyholder. Additionally, you have the option to keep the age and health you are in when you purchase the policy so if a health issue comes up in the future they cannot raise your premium. This is another benefit to purchasing a policy when you are young and healthy but shouldn’t deter you if you could afford to lose a few pounds. If you improve your health, you can always apply for lower rates.
A lot of people already have some life insurance through work and that’s great. I highly recommend taking advantage of that benefit but that doesn’t necessarily mean that you have enough coverage. Also, you can’t take this coverage with you. It is important to consult an agent and decide if the policy you have is enough coverage and if it accomplishes what you want from your life insurance policy.
Your agent should conduct a review where they look at your short term and long term needs and design a policy or policies to fit your needs. At that point, the agent submits the application and you are contacted to answer some health related questions and take a medical exam. In addition, the life insurance company may consult your doctor. Once the insurance company has all the information to make a decision they underwrite the policy and come back on a final decision for the rates or cost to insure your life. Then you are finished and your life insurance policy is in place. Should you die during the course of the policy, the benefit will paid out in a check hand delivered tax-free by your agent to your beneficiaries.
Life insurance is an important aspect of anyone’s financial stability. The peace of mind derived by knowing that your family is protected is priceless. As an agent, the most rewarding moment of my career was hand delivering a life insurance check to a family that was devastated by the loss of their primary earner, husband, and father. There is no replacing you, but the financial stability you leave behind goes a long way to redeveloping a normal life again. Now that you have learned a little about what life insurance covers, how life insurance works, and your options, be sure to contact us to conduct your free review.
Be sure to also tell your family, friends and co-workers about our blog and to get coverage as well.
Jack has achieved success in the insurance industry through a consultative and honest approach to clients. He designed this approach around educating clients on important coverage and allowing them to decide what policy would best fit their insurance needs. In 2013, Jack and co-founder Dave Zappacosta, established Bridge First Insurance, as an independent insurance agency operating in Virginia, DC, and Maryland.