How to choose the right life insurance policy for your needs
Life insurance can help a person leave something behind when they’re gone but choosing the right type of life insurance can be extremely difficult. In fact, this decision can be so daunting that many people choose to forego investing in such a policy. However, with 44% of Americans reporting they would have financial difficulty if they lost the primary wage earner, ensuring your household is protected with life insurance is a must.
What is life insurance?
Life insurance is a basic agreement in which an insurance company will pay a certain, pre-agreed upon, sum of money after the death of an insured party. This amount is called a death benefit and will only be paid if the premiums on the policy were completely paid and up to date while the person was alive.
With a life insurance policy, there are a number of people and factors involved. Some of the more prominent include:
- The insurer: This is the state-regulated company that is providing the life insurance policy.
- The insured: The insured is the person whose life is covered by the policy.
- The policyholder: This is the person or entity who holds the policy, but it doesn’t have to be the same as the person who is insured.
- The beneficiaries: The people or party who receive the death benefit. A beneficiary can be a single person, such as a spouse, or it can be divided among many people.
- The premium: This is the price the policyholder needs to pay monthly or yearly to keep the policy active.
- The cash value: Certain life insurance policies have a cash value that builds up over time and can be cashed out on or even borrowed against.
Who should have life insurance?
Life insurance may not be the right choice for everybody. For example, if you are single and have no dependents, along with strong enough financials to cover funeral expenses if you suddenly died, a life insurance policy doesn’t make much sense. However, if you are the primary provider for dependents or have a spouse who doesn’t work, a life insurance policy could provide them with financial support after your death.
Different types of life insurance
The types of life insurance can vary on a state-by-state basis. For perspective, Illinois life insurance comes in two forms: term and permanent. Most states mirror this model, but there may be small discrepancies depending on the state. Let’s cover the basics of these types:
Term life insurance
Term life insurance policies will only provide coverage for a certain period of time, usually between 10 to 30 years. As a result, it is generally more affordable than permanent life insurance. When the term period ends, you can likely renew your policy at an adjusted rate. This new rate will be based on your medical standpoint and age and can usually only be renewed on a year-over-year basis.
Permanent life insurance
A permanent life insurance policy, on the other hand, last for your entire lifetime and never needs to be renewed. Due to this, permanent life insurance tends to be more expensive than term life insurance. Additionally, some permanent life insurance policies have a cash value that builds up over time. This value can be accessed or borrowed against while the insured party is still alive.
5 factors to consider when choosing life insurance
Choosing between a term life insurance and permanent life insurance policy can be challenging. There are a number of factors to take into account when deciding on life insurance, assuming you have determined a policy is in your interest:
1. Your current age
If you are already on the older side, spending more money on a permanent life insurance plan may not be worth the cost. A term life insurance plan for 30-years could be cheaper and the better choice. On the other hand, if you are just starting a family then it may be in your interest to invest in a more expensive permanent plan that’ll keep you covered for years.
2. Your planned budget
It’s important to set a budget for your life insurance policy. Many policies offer add-ons that could be beneficial for your specific situation, but they come at an extra cost. Determine what you’re willing to spend on life insurance before investing in a policy.
3. The current state of your health
In the event that you don’t currently have the funds to invest in a life insurance policy, evaluate your health. If you are in fantastic health and there’s no foreseeable health issues that could arise in the future, investing in a life insurance policy immediately could be put off until you have the necessary funds.
4. The duration you need it for
Some people may find themselves in a dire health situation at a younger age where they fear that they will not survive the coming decades. Investing in a term life insurance policy at this point could make sense. If your health issues resolve later down the line, then renewing the policy may not be in your interest any longer.
5. Your gender
Women live longer than men on an average basis, which is a factor to consider when wondering whether life insurance is right for you. Additionally, men are more likely to have fatal health issues such as heart disease, strokes, and diabetes whereas women are more likely to have arthritis and depression. Taking the likelihood of developing health issues based on your gender into account is an important aspect of whether a life insurance policy is right for you.
Stay protected at all times
Life insurance may not seem like a worthwhile investment at first glance, but it can help provide family members with coverage in the event of a sudden loss. Depending on your financial and personal situation, one form of life insurance may be beneficial over another. Consider all of your options and speak to a life insurance agent if you feel ready to invest in a coverage policy.