Life Insurance

Life insurance is a contractual agreement between a policyholder and a life insurance company. Policyholders agree to make premium payments to the life insurance company, and the carrier agrees to pay your beneficiaries a sum of money if you die.

Life insurance is a way of providing for financial dependents after a person dies. It is intended to replace lost income and pay for any additional expenses that are experienced by those left behind when a family member who contributes income or services to a household is lost. It can also be used for final expenses like medical bills or funeral costs that survivors would have to pay when a death occurs. Life insurance is an important part of financial planning for families and individuals.

Purposes of Life Insurance

Most often, the purpose of life insurance is to secure the financial security and well-being of one’s family or dependents in the case of a wage-earners or breadwinners death. However, life insurance can also be used for the following reasons:

• For mortgage protection – to cover your mortgage loan or payments
• To fund retirement – the savings, cash value build-up or investment opportunity help build a family’s net worth or nest egg
• To pay for childcare to replace a home-maker’s contribution
• For estate protection
• To protect a business against the loss of a key employee, known as key man life insurance
• As an employment benefit, typically offered through group life insurance

Parts of a Life Insurance Policy

Most life insurance policies consist of some or all of these components. The following are brief definitions of these terms that frequently show up in your life insurance policy coverage.

• Cash Value - An interest-bearing savings account included in permanent life insurance policies.
• Death Benefit - A lump sum payment or series of payments made to a life insurance policy’s beneficiaries upon the death of the policyholder or the insured individual(s).
• Health Class - An insurance company’s medical evaluation of an individual’s health after an exam. This medical information is used to calculate the insured’s mortality risk, and thus helps determine their life insurance rates.
• Premiums – A periodic payment from the policyholder to the life insurance company to keep the policy valid and in force.
• Quotes – Life insurance quotes are rate estimates made before the official application process, detailing the costs of the life insurance policy.
• Rates - The price or premium required to maintain a life insurance policy.
• Riders - Policyholders may add features or additional coverage to their life insurance policy by attaching a document called a “rider”.
• Taxes – Life insurance is generally free of income tax, but beneficiaries may have to pay estate taxes, if applicable.

Do I Need Life Insurance?

Any wage earner with financial dependents should have life insurance coverage to provide for his dependents in case of premature death. Non-wage earners who make significant contributions to the home, like child care and daily household maintenance, should also have life insurance in order to pay for those services should they pass away. Adults who may leave medical expenses or funeral costs should also have enough life insurance to cover their expenses, so survivors will not be left with debts.

A Life Insurance Policy Is A Legal Contract

A life insurance policy is a legal contract between the insured person and the life insurance company, and like all contracts, it is enforceable by law and shouldn’t be entered into lightly. Both parties to the contract have certain rights and obligations which are explained in the policy, so it is important that anyone buying a life insurance policy read the contract before signing it. There may be exclusions in the contract for certain causes of death, such as suicide, where the life insurance company can legally refuse to pay the death benefit.

What Type of Life Policy Is Best?

The best type of policy depends on an individual’s circumstances, income level, financial obligations and their stage of life. Whole life policies are permanent and have a savings feature but their premiums are higher than term life policies. Universal and variable life policies are investment vehicles combined with life insurance and like whole life, they have a cash value. Term life insurance offers the greatest amount of coverage for the lowest premiums, but has no cash value and expires at the end of the term.

Types of Life Insurance

There are different types of life insurance which meet the needs of different people at various stages of their lives. The major types of life insurance are term life insurance, whole life insurance, universal life insurance and variable life insurance; there are different policies within each type as well, which offer specific benefits for different people. All life insurance policies have a death benefit which is payable if an insured person dies while the policy is in effect, but the terms and conditions of other aspects of the policies differ.

• Term life insurance requires regular, fixed premium payments and provides coverage for a certain, predetermined period of time outlined by the initial contract. Policies last anywhere from 1 to 30 years, and, in most cases, the policy only pays a death benefit if the insured individual dies before the policy expires. Term life insurance is the cheapest, most affordable type of life insurance.
• Whole life insurance requires regular, fixed premium payments which are higher than term life insurance. Whole life policies guarantee coverage up to a certain age and guarantee the payout of a death benefit, even if the policyholder outlives the policy period. These policies carry cash value, which means that they can be liquidated, used as collateral for business or personal loans, or serve as a nest egg for retirement.
• Universal life insurance allows for the flexibility of premiums payments of any amount, at any time (up to a certain government-stipulated maximum). Universal life insurance policies can be maintained indefinitely, and also carry a cash value that can be paid out or borrowed against.

How Much Life Insurance Do I Need?

The amount of life insurance an individual needs depends on their current and expected future income, as well as other assets his dependents may receive, such as pensions, survivor’s benefits and mortgage insurance. If an individual cannot afford to purchase all the life insurance coverage they need, they should purchase as much as they can afford, to give their family the best protection possible. Life insurance policies are usually long-term contracts, so some financial planning should be involved when selecting the policy limit.

Buying Life Insurance

Most potential consumers looking to buy life insurance are troubled by three primary questions. These questions are extremely important in determining your life insurance rates, policy type, coverage, and terms, and thus need to be carefully considered before purchasing life insurance.

1. What is the right amount for a death benefit? How much will my beneficiaries need to survive or maintain a certain lifestyle?
2. How long do I need life insurance coverage? Based on my current lifestyle and health, realistically, how long will I be alive to take care of my family?
3. Who should I buy life insurance from? Which life insurance company is best?

The following are some life insurance tips to help potential life insurance policyholders answer these questions.

1. Most individuals need a death benefit about 10 times their annual income.
2. Wage-earners or breadwinners need coverage for at least as long as it takes for them to reach retirement, allowing them to maximize their cash value or investment accounts with the premiums they pay. Homemakers need to purchase life insurance coverage for at least as long as there are dependents/children who require care at the home.
3. Only buy life insurance from a financially-stable, reputable life insurance company likely to be around in the future. Our list of life insurance companies is a good place to start your search for an affordable carrier. TheLifeInsuranceQuote.com also offers free life insurance quotes from multiple companies in the U.S.

Affordable Life Insurance

There is a wide range of premium options available for life insurance, and your life insurance rates depend on the age and health of the insured, as well as the amount of coverage and the type of policy selected. Since rates are determined in part by age, most life insurance specialists recommend that life insurance be purchased when young to lock in lower rates. Reviewing and comparing life insurance quotes online from different companies will help most people find a payment plan that will fit their budget.

Life Insurance Is A Gift

Life insurance offers peace of mind to policyholders and their survivors if and when they do pass away. Life is uncertain, and it is important to plan for the unexpected and those with life insurance know their family’s financial needs will be met if they are no longer around.

Ensuring that dependents will not be left without sufficient income to pay for life’s necessities is a gift that demonstrates the care and love they have for family. Life insurance provides a legacy for survivors, which has more intrinsic worth than the value of the policy.

Life Insurance Quotes

Life insurance is an important component of long term financial security. It may be chosen simply to protect survivors, or it can be a way to save or invest money while providing protection at the same time.

One way to find the best, cheap life insurance is to get free life insurance quotes from TheLifeInsuranceQuote.com, and compare the costs of different policies and limits.

To get an instant life insurance quote, enter your five-digit zip code in the box provided above. You can get multiple quotes online from the best life insurance companies in the U.S, helping you compare and find affordable life insurance rates before you purchase a policy.

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