Approximately 54% of Americans have some form of life insurance protecting them and their loved ones. Yet, another study found that some 41 million Americans need life insurance coverage and don’t have it.
Which group are you a part of? Many people struggle with the idea of life insurance since they feel like it’s connected to their mortality. However, if you have anyone who counts on you for care, you probably realize that you need to be thinking about life insurance for the future.
It can be overwhelming to consider a life insurance policy and you probably have a slew of questions about life insurance that are keeping you from actually getting that protective life insurance policy in place.
Here are a list of answers to some of the most common life insurance questions.
Do I Really Need Life Insurance?
Yes. Once you take on adult responsibilities like buying a car and a house, especially when you have a family to support, you need to also make sure that you have life insurance in place.
Most experts agree that anyone who has dependents or other people who count on them for the financial support need life insurance. The role of life insurance is to provide financial protection for the people you’re responsible for once you are no longer able.
Life insurance will help those who count on you be able to continue to live the life they had that you provided for them.
How Much Life Insurance Do I Need?
Since nobody can really know when they are going to die, this is a hard question to answer. There are several models that most life insurance companies follow. The amount of coverage you need will depend on your age, debts, monthly expenses and number of children.
Life insurance companies have calculators that can help you figure out what you need.
There are basically three models to follow.
The simplest model suggests you take your annual yearly income and multiply 10. While this will give you a ballpark of how much coverage you need, it doesn’t factor in any savings you could have in place or other insurance policies.
The next model is similar, and it suggests you take your income and multiply by 10, then add $100,000 per child. This would help to account for future college expenses for children.
The most detailed model is called the DIME model. In this calculation you consider:
- Debt and final expenses
- Income
- Mortgage
- Education
When you take into account all debts and costs, it can give you a better indication of how much life insurance you should purchase to provide for your family after you’re no longer able to.
How Much Will Life Insurance Cost?
Just like no two policies are alike, neither are the policyholders. Cost for life insurance is based on criteria for the person buying the life insurance.
Your life insurance company will consider several factors about you and put that together with how much coverage you want to calculate the cost of your life insurance.
Factors include:
- Age
- Gender
- Health history
- Family health background
- Are you a smoker?
- Do you participate in any high-risk hobbies?
- Occupation
Once the insurance company looks at those factors about you, they then look at how much coverage you want, and the type of insurance you’re seeking to calculate the cost.
Most insurance companies offer insurance calculators so you can see how different factors impact cost.
Will I Need to Get a Medical Exam to Get Coverage?
It used to be standard that to get a life insurance policy, you would have to get a medical exam. This is not always the case anymore. It will depend on your individual insurance provider, and sometimes, the type of life insurance you’re seeking, on whether you need a medical exam.
You should be prepared to answer a medical questionnaire about your health, health history, and your family health background.
Some insurance companies use what’s referred to as a paramedical exam. This is a very basic medical exam done by a medical assistant who usually comes right to your home.
What’s the Difference Between Term Life Insurance and Permanent Life Insurance?
There are two basic kinds of life insurance a person can get: term life insurance or permanent or whole life insurance. There are multiple variations for both of these types of policies depending on you and your family’s unique needs.
Term life insurance is popular for a few reasons. It tends to cost a little less than permanent insurance. When you buy term life insurance, you decide not only how much insurance coverage you want, but you also decide for how long. Typical terms are 10, 20, and 30 years long.
For example, you might buy $250,000 of life insurance coverage for 20 years. This means that as long as you continue to pay premiums over the next 20 years and you die during that time period, your beneficiaries will receive $250,000. The Premium also stays consistent for the full 20 years.
At the end of the 20 years, if you’re still living, in most cases the term policy expires, and you no longer have coverage. Depending on your age at that time, most term policies allow you to buy additional years to the term. Although, your additional term premium will be based on your current attained age when buying additional terms.
The positive to term insurance is the lower cost to death benefit amount and the guarantee that you have Life Insurance and cannot be cancelled if your health takes a bad turn.
With permanent life insurance, the insurance policy is structured to build cash values in addition to paying a death benefit. These “cash values” build and compound tax free and the higher the balance becomes the more creative you can be with how you use it. It’s your money, so you can borrow it and keep your policy, cash it in, use it to pay future life insurance premiums, or even cash it in and use the funds for retirement purposes.
Permanent insurance costs more because you’re funding the life portion as well as saving the additional cash value.
An important thing to remember about Life Insurance is it is more than just a death benefit. It can be a tool to help you plan and protect those who rely upon you. Because Life Insurance death benefits pass on tax free. It is a unique vehicle to help you and your family continue, not just with death of the insured alone, but it can assist you through all the various life stages, backing of financial loans, building retirement funds, funding long-term care needs, paying for education and even estate taxes.
Get Life Insurance Answered Today
Hopefully, answering your questions about life insurance has made you more prepared to seek life insurance for you and your family. The younger you are, the more affordable it is to start your journey with Life Insurance.
If you have more questions or need help deciding on the best policy for your needs, we can help. Contact us today to set up a time when we can discuss all the questions you may have regarding your life insurance coverage.
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.
