Frequently Asked Questions (FAQ) About Life Insurance
Exploring life insurance policy options without the right guidance can be tricky. There are a number of policy types, options and a myriad of decisions to make as you plan for your family’s future. The answers to the following commonly asked questions are by no means an exhaustive rundown of all life insurance nuances, but should begin to help you traverse the learning curve.
Who needs life insurance?
If you have dependents with short- or long-term financial obligations that you’re providing for, you should be armed with the appropriate life insurance policies. While short-term needs can include funeral and burial expenses, long-term obligations could include your children’s college tuition costs or keeping a business up and running.
What are the different types of life insurance available?
While there are several types of life insurance policies available, two of the most popular types are term life insurance and whole life insurance. Whole life insurance is a policy that’s structured for the entire lifespan of a policy holder, guaranteeing a payout if all conditions are met and premiums are paid. Policy premiums remain static for the duration of the policy, meaning that they’re relatively high in the beginning period when there is lower risk of death, and relatively lower as a policyholder ages. In fact, whole term policies accrue cash value that can be borrowed against and invested. Conversely, term life insurance policies are meant to insure a policyholder during lower risk years for a total of 10, 15, 25 or 30 years. Policyholders lock in on a level premium rate that’s much more affordable than those of whole life plans for obvious reasons. If the policyholder dies before the policy lapses, the designated beneficiary will collect the amount the policy was underwritten for.
How do I select an insurance policy provider?
There are no shortage of options. One common approach is to shop through an agent. Some agents represent multiple agencies and have the ability to price out the best rate for you, which is important because different life insurance providers assign different levels of risk to certain medical conditions and other factors impacting insurability. Other agents work exclusively with one agency, which means they likely have a deeper understanding of that particular company’s offerings and how they might best suit your needs. You may want to consider companies you use for other insurance and financial products, not only for the sheer convenience, but because they may offer a discount for bundling policies.
What is the process of becoming insured?
The length and detail of the process to determine your insurability and underwrite your policy correlates to the type of policy and the amount you wish to be insured for. Steps will usually include a medical questionnaire, an interview and a physical, which may take place at your home or at a physician’s office of the life insurance provider’s choosing. You may see or hear some companies who guarantee life insurance without requiring a medical exam. Be wary of these offers; vet the provider carefully and be sure to read the fine print as to how the payoffs will occur.
What determines the policy’s premium?
Your family history, age, current health, whether or not you smoke, as well as the type of policy, duration (for term life) and policy amount all play a role in determining your premium. Additionally, an agent’s commission also factors into the bottom line.
How much life insurance should I buy?
The amount you’ll insure yourself is a very personal, potentially complicated formula. Take into account short-term liabilities such as funeral and burial expenses, as well as debts and other potential sources of cash that may be available to your loved ones, such as savings, properties and stocks. Some industry experts recommend that chief income providers have a policy that’s worth at least 10 times their annual income. Of course, one factor to consider in all of this is the monthly premium you can afford to pay today – and have confidence you can continue to afford paying down the road.
Determining the best life insurance policy for you and your family can be an overwhelming process. But the answers to these commonly asked questions should be an adequate primer to get you pointed in the right direction in determining your best course of action for attaining life insurance. Once your police is written and signed off on, odds are you’ll feel a weight has been lifted from your shoulders as you’re providing critical safety and security for your family and friends.