55 Important Things to Know About Life Insurance

Here is a list of important things to understand about life insurance before buying a policy:

What is Life Insurance?

 

At its core, life insurance is a contract between you and an insurance company. You pay premiums, and in return, the insurer promises to pay a sum of money to your beneficiaries upon your death.

 

Types of Life Insurance

 

Primarily, life insurance is divided into two categories: term life and permanent life insurance. There are various subtypes within these categories.

• Term Life Insurance: This is the simplest and most affordable type. It provides coverage for a specified term, like 10, 20, or 30 years. If you die within this term, your beneficiaries receive the death benefit.
• Whole Life Insurance: A type of permanent life insurance that covers you for your entire life with a fixed premium. It also has a cash value component that grows over time. Premiums are much higher for whole life compared to term life policies.
• Universal Life Insurance: This permanent life insurance offers flexible premiums and death benefits. It also builds cash value, which can be used for loans or to pay premiums.
• Variable Life Insurance: Allows you to invest the cash value in various investment options. These policies come with more risk but potential for higher cash value growth.

 

Deciding Between Term and Permanent Life Insurance

 

Your choice depends on your financial goals, the period you need coverage, and your budget. If you need coverage for 30 years or less, or the maximum amount of life insurance at the lowest cost, then term life is an option to consider.

 

Life Insurance Premiums

 

The cost of your life insurance policy varies based on several risk factors like age, gender, health, lifestyle, tobacco use, hobbies, occupation, driving record, and the type and amount of coverage. 

 

Death Benefit

 

This is the amount paid to your beneficiaries upon your death. Make sure it’s enough to cover your financial obligations and provide for your loved ones.

 

Coverage Amount

 

You need to assess your debts, mortgage, income replacement needs, and future expenses like education to determine the right coverage amount. 

Consider what goals you want your life insurance plan to accomplish to help guide you in determining the right amount of coverage to buy.

 

Beneficiaries of Life Insurance

 

These are the people or entities you designate to receive the death benefit. Keep your beneficiaries updated to reflect any life changes.

 

Grace Periods

 

Life insurance policies often have a grace period (around 30-31 days) after a premium due date during which the policy remains in force.

 

Lapsed Policies

 

If you miss a premium payment and don’t catch up within the grace period, your policy may lapse, meaning you lose your coverage.

Industry Ratings

 

Check ratings from organizations like A.M. Best to assess the financial strength and reliability of the insurance company.

 

Free Quotes

 

To start your journey, request a free life insurance quote to understand your options and costs. Knowing the fundamentals ensures that you can confidently choose the life insurance policy that best meets your needs and protects your loved ones. 

Here is the comprehensive list of 55 things to know about life insurance for further review.