If others rely on you for financial support, an essential part of your financial plan should include how to provide for them in the event of your death. To help you choose the best option for your needs, we’ve outlined the basics in this blog post.
THE BASICS OF LIFE INSURANCE
If you’re married, it’s important for both spouses to have life insurance. When both partners contribute financially, the death of one can lead to significant financial strain. Even if a stay-at-home parent passes away, costs like childcare and other household expenses can create a financial burden.
There are two main types of life insurance: term life insurance and permanent life insurance. The best policy for you will depend on your unique needs.
OPTION 1: TERM LIFE INSURANCE
As the name suggests, term life insurance covers you for a specific period of time, or “term,” that you choose. Since it provides a death benefit but no cash value, term life insurance is a cost-effective way to protect your beneficiaries for a set period. The term “cash value” refers to the savings component of a permanent life insurance policy, which represents the policy owner’s equity in the plan.
Renewable term life insurance allows you to extend coverage at the end of the term without needing to provide proof of insurability. It can also be converted into a permanent policy without additional medical exams. However, rates typically increase with age.
OPTION 2: WHOLE LIFE INSURANCE
Permanent life insurance refers to any policy other than term life, including whole life, universal life and variable life. These plans combine life insurance with a long-term, tax-sheltered savings element. Whole life insurance is the most basic type of permanent coverage, providing lifetime protection while building cash value that you can borrow against, withdraw or use to pay future premiums.
Whole life insurance is ideal for those who have a lifelong need for coverage, prefer consistent premiums and want to build tax-deferred cash value. While whole life premiums are more expensive than term insurance initially, they remain stable over the life of the policy.
CALCULATING LIFE INSURANCE PREMIUMS
Premiums are determined based on your health and risk factors, such as tobacco use, cholesterol levels, obesity, diabetes and family medical history. While some factors are out of your control, adopting healthier habits can lower your premium and improve your overall well-being.
APPLYING FOR LIFE INSURANCE
When you apply for life insurance, you will be asked to provide information about your medical history and undergo a physical exam. It’s essential to be truthful during this process—failure to disclose accurate information could lead to policy cancellation or denial of benefits to your dependents after your death.
The medical exam, conducted by a professional hired by the insurance company, typically includes checking your weight, blood pressure and other vital signs. After the exam, the insurance company will determine your premium. If you’ve made lifestyle changes that improve your health after obtaining your policy, you can ask your insurer to review your premium.
If you’ve made lifestyle changes that improve your health after obtaining your policy, you can ask your insurance advisor to review your premium.