When it comes to life insurance, there is always something new to learn. These types of insurance products or plans are quite complex and confusing which makes navigating them a bit frustrating. Good thing that September is national life insurance awareness month. In order to help you out, we will take you on a quick trip through “life insurance 101”. Our goal is to give you a quick understanding of the big picture, and terms that may be used when talking about life insurance.
The big question: What is Life Insurance?
This is fairly simple to answer. Life insurance is a financial safeguard in the form of a policy that you purchase while you are alive. This policy will help your loved ones out after you are gone, both financially and emotionally. You will be able to have a plan with more options and flexibility the sooner you purchase a policy, rather than later. The type of plan you purchase will help with expenses that are not commonly thought about when it comes to a loss.
Do I need a life insurance policy?
The short answer is yes, everyone should have a life insurance policy. These types of policies are often bundled with insurance plans at businesses. They are often referred to as “benefits” or a “benefits package”. It is never too late to consider life insurance, in fact, the earlier you can get a policy, the better!
What type of life insurance policies are there?
There are two main categories which will give you a good idea what to choose going forward. These are called term life insurance, and whole/universal life insurance. We will go over a few key differences.
Term life insurance:
This type of plan offers what is called a death benefit for a set time period. Most term life plans are typically between 5 or 20 years. Many people start with these policies through an employer. Some policies can be converted to a permanent policy at a future date.
Whole, universal or variable universal life insurance:
This type of plan, as its name implies, is a whole life protection plan. This is a long-term solution and even provides permanent coverage. These types of plans may have more complex structures where there may be more guarantees”. Whole life policies may also give you the opportunity to grow their cash value.
Which type is best?
That is hard to answer considering that everyone’s lives are different. Your best life insurance policy will be different from someone else’s based on factors such as age, occupation, and family history. You may need to purchase more or less coverage depending on where you are in your life.
How much coverage do I need?
If you plan on starting a family or have already done so, the goal is to have a policy which can replace your income if something happens. If you are in your later years, you may want to reassess your policy’s amount in order to focus on final expenses and other needs, such as any outstanding debt. Everyone’s needs do change over time which determines what type of income protection you may be entitled to.
Life insurance terms to know
We have been using some insurance jargon and wanted to help clear up any confusion.
Cash value
This is the amount of money in a permanent policy that accumulates as you pay your policy’s premiums. You may access the account for a variety of financial needs. These may be in the form of loans or partial withdrawals. This money grows tax deferred, which means you pay no taxes until you are ready to withdraw any money. The growth potential is a bit faster than a taxable product.
Convertibility
As stated previously, convertibility is a benefit, provided by some insurance carriers, that allow you to upgrade from a temporary term life policy to a permanent one.
Beneficiary
The person or entity that receives the benefit amount when encountering the loss of a loved one.
Rider
A written add-on, typically available for purchase, that you can choose to incorporate into your policy to further customize coverage.
We hope that our explanations and terms have helped you understand this branch of insurance a bit better! We always want to give our readers, clients, and friends the upper hand when it comes to anything insurance related.
Always remember that we are here to help answer any questions you may have when it comes to all things insurance! Drop us a line at service@harrisinsurance.com or call us at 850.244.2111 to speak to your agent.
See More: What is Life Insurance and how does it work?
LEGAL DISCLAIMER
Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.
