A life insurance policy is an agreement between a person and the insurance firm. The insurer pays out money after the policyholder dies in exchange for premiums (regular payments). The amount goes to the people a policyholder chooses as beneficiaries, often a spouse, children, or other family members. Life insurance can be an important safety net if you have dependents. The beneficiaries can use the funds to replace their income, repay debts, or provide funds for future costs like college tuition.
It is not difficult to buy a life insurance policy. However, it would be best if you were informed about comparing life insurance types and quotes to purchase the most suitable policy.
Choosing the right kind of life insurance
The two major kinds of life insurance are permanent and term. Within the two categories, various kinds of policies exist. You can get a great life insurance plan when you understand which type is most appropriate for you.
Permanent life insurance
This type of insurance is costlier than term life insurance, but it provides extra features such as a cash value account that grows over time. In many cases, you can borrow funds against the account’s value while you are still alive. The most well-known kind of permanent life insurance is whole life insurance. Others include variable universal, variable, and universal life.
- Pros – Permanent life insurance can offer money for your beneficiaries regardless of when you pass away. This kind of insurance is also advantageous if you wish to spend your retirement savings but still, leave funds for financial expenses like paying for your funeral.
- Cons – Permanent policies are costlier than term life products because of their lifelong cash value accounts and coverage.
Term life insurance
This kind of insurance works by providing coverage for a limited time, like ten or twenty years. You can select the term length which matches your needs. If you die within that term, your beneficiaries get the payout. When your policy expires, you can purchase a new one or reevaluate your options. In the ideal situation, by the time your time life insurance ends, you will not need to have an insurance policy. You will have paid down your home, your children will be grown up, and you will have some funds in the bank.
- Pros – A term life policy is cost-effective. In some situations, you can purchase such a policy without getting a medical exam.
- Cons – Term life insurance is valid for a particular period, and it does not build cash value.
The amount of coverage to purchase
To determine the amount of life insurance to get, consider your financial obligations, and take a policy that matches them. Income and debt replacement calculators can assist you in deciding before you obtain quotes. Some of the costs to consider include:
- Daily living expenses like personal loans, mortgage, or credit card balances.
- Outstanding debts like credit card balances, personal loans, and a mortgage.
- Future expenses like college tuition and funeral expenses.
The other way to determine the amount of life insurance to get includes multiplying your yearly income by ten and using that figure as a rough estimate. You might have life insurance through your employer, but it is advisable to have your own policy in addition to the one your employer provides.
The policy that comes through your workplace may not be enough to meet your family’s financial needs and may cease to exist once you leave your job. Applying early for life insurance is essential. Regardless of the insurance firm you choose, the two major factors determining the premiums you will pay include your health and age. Therefore, the rate will be better if you take a life insurance policy when younger and healthier.
It is possible to obtain life insurance when you have a medical issue, but insurance companies consider pre-existing conditions differently. Certain policies like simplified issue and guaranteed issue life insurance do not require a medical exam. However, undergoing a medical exam when you are healthy can lower your rate because the insurance firm will be sure that you do not have an ailment.
How to purchase life insurance
You can get a life insurance policy in the following ways:
- Directly from your insurer – After performing your research and determining which policy you want, you can apply for a policy directly from the insurance firm.
- Through a broker or agent – If you need assistance in selecting the right policy, a life insurance broker or agent can help you look at different options and choose the suitable policy for your budget. The agent can also obtain all the documents required to get a policy.
- Comparing policies online – Many insurers offer online life insurance quotes, making it easier for customers to shop for the right coverage.
It is also vital to assess life insurance firms. As you do so, consider the following factors:
Ratings on financial strength – These ratings determine the ability of an insurance firm to pay out claims in the future. Some agencies that allow consumers to check the financial strength ratings of insurers include Standard & Poor’s, and A.M. Best. If possible, avoid firms whose A.M. Best rating is lower than B.
- Policy options – Insurance companies sell different policies, and some concentrate on certain products like life insurance policies for kids. You can read life insurance reviews and determine the type of coverage you want before comparing life insurance quotes.
- Complaint reviews – Ideally, you should select a firm known to offer outstanding customer support. Look for a company that does not have many complaints.
Tips for applying for life insurance
Before beginning the process of applying for life insurance, gather the information you need. You need to provide insurers with details about your past and present health conditions and your family’s health history. The insurance firm might need your consent to obtain medical records and request you to obtain a medical exam. Your insurer may also ask that you answer questions about driving violations and criminal convictions, especially if they occurred recently. Some insurance firms enable consumers to apply online, and if approved, their coverage gets into effect on that date.