Life InsurancePersonal Finance
In the event of death life insurance sustains family members by providing payments to replace their lost income. The insurance provider pays a lump sum to the family itself. Under certain circumstances such as fraud or suicide, they will not pay the lump sum. They usually will have an investigation after deaths of insured parties.
Life Insurance is a substitute for the insured’s income, so it must be enough for familial needs. It will need to pay off the debts left to the family. It may need to pay for the burial of the insured. If there is little debt, it provides income and eliminates future major expenses.
The best time to apply for life insurance is when the price is least expensive. This is during your youth when you’re healthiest. As you age, the premium you are charged increases over time. Young people typically don’t need life insurance, unless they are a married and have children. As you age, health decreases and the chance of death increases. This rationale drives the increase in premium prices you pay as you age. Dangerous hobbies or occupations result in increased premiums. These offset the risk you create.
Your application contains personal questions about your medical history and lifestyle. This may be accompanied by an actual medical physical or lab tests scheduled by the life insurer. Many people are tempted to lie. Your deception may appear in testing. If medical history or autopsy reveals a lie, your life insurance policy may be denied and coverage payment to your family canceled. Your family may even face charges for life insurance fraud. Your coverage was being acquired at a rate far below what you would be charged if you were honest.
You should consider an application at the same insurance provider that handles your other insurance policies. Using the same insurance provider as other insurance types can result in reduced bulk rates.
There are two types of insurance, term insurance, and cash value insurance. Term insurance is as temporary as it sounds. It lasts a moderate duration of time, typically 10 to 20 years. During this time, you pay the insurance’s premium or the monthly cost of the policy. If the person covered by the policy dies while the policy is in place, your family receives the payment. The insurance policy ends at the end of the time period. At this point, the premium stops. The insured’s family won’t receive a lump sum if death occurs after coverage ends.
There are four major subsets of term insurance. The first is level term insurance. Level term insurance coverage stays the same during the policy, until term renewal. There is normally no medical check. At renewal, the price will change with age. Age is an indicator of likeliness to die, so the price of insurance rises as you are older. This is reflected in the second subset of term insurance, Annual Renewable Term. The price of insurance will rise each year, in accordance with your age. The third subset is Decreasing Term. The protection offered to the insured decreases slightly each year, until the term ends. The last policy is Increasing Term. This policy increases coverage each year until the policy ends. In almost every circumstance, a term policy is typically cheaper than its permanent alternative, Cash Value Insurance.
A long term insurance policy is known as Permanent or Cash Value insurance. This policy lasts until death, or age 100. These policies are more expensive than term policies. They actually separate into two parts, the insurance protection itself, and the “cash value”. Over time, cash value policies build a “Cash Value” fund pool. The cash value begins to build with your premium payments after a period of time. This time period is one to three years depending on the policy. This pool of funds cannot be withdrawn, but you can borrow against it at a specific rate of interest.
At the death of the insured, the family will receive the coverage amount, but never the cash value. If the insured lives until age 100, the company sends the insured a check for the full value of the coverage and the policy ends. Permanent insurance coverage may stay the same, but it can also fluctuate over the term of the policy. Review your insurance policy to determine whether coverage is static or variable.
There are three ways to handle payment of a permanent policy. Premiums can be paid monthly for your entire life. They may also be paid monthly for a period of time such as 15 to 30 years. These premiums are more expensive since you are packing a lifetime of premiums into a short term. Coverage lasts until death or age 100 even though premiums were only paid for a short period of time. The last potential way to handle your premium is a lump sum payment. This single upfront payment guarantees coverage for your entire life.
The actual coverage needed varies with annual income and the insured’s financial needs. The coverage amount should begin at 10 times your income. The maximum is typically 25 times annual income. It’s better to overshoot the amount of coverage versus underestimating. If underestimated, the family won’t receive enough financial assistance at death. You can reapply for higher coverage.
Your life insurance will be inherited by your beneficiary. Note that your beneficiary is not designated by your will. You must designate the beneficiary in the insurance forms. If you want to change who benefits from the life insurance policy, you must update the beneficiary. No other document will impact who receives your life insurance in the case of your death.
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