Having life insurance is absolutely necessary for individuals who want to provide financial security for their surviving loved ones. Life can be very unpredictable, and life insurance allows you to plan for the future so that your end-of-life and funeral expenses are covered. While it may feel uncomfortable to think about the future in this way, covering your bases with the help of a knowledgeable local insurance expert can give you unmatched peace of mind.
If you are looking to get a life insurance policy, you should get the assistance of an independent insurance agency. An independent insurance agent can help you evaluate your options and choose the right policy for your needs and budget from among the best and most trusted carriers. Here is a breakdown of how to get life insurance, what it covers, and the pros and cons.
What is Life Insurance?
Life insurance policies are a way of preparing financially for the future after you have passed away. A term life insurance policy is one type of life insurance that provides coverage for a specific period. The way life insurance policies work is they will pay money to your chosen beneficiaries in the event of your death. Life insurance payouts can work in a few ways: through a lump sum payout, retained asset account, installments, or annuities.
One of the best things about life insurance policies is that the beneficiaries can use the benefits in various ways. This allows them to take care of any financial responsibilities after your death.
For instance, a life insurance payout can help pay off a mortgage or outstanding consumer debt. Life insurance payouts are also commonly used to cover burial and end-of-life costs, pay for the care of a dependent, or cover household expenses.
Key Features of Life Insurance
Depending on your life insurance policy, you may have different features and coverages. Here is a breakdown of the key features you will want to look for in a life insurance policy:
- Death benefits: The main thing to look for in a life insurance policy is the death benefit it provides. This will be paid out to the beneficiaries upon your death, and some policies may include bonuses, such as supplemental life insurance benefits.
- Premium payments: Premium payments are the designated amount you pay monthly or yearly to keep your insurance policy active. Different policies come with different insurance premiums, including term life insurance premiums, which can vary based on your preferred coverage amount and other factors, such as your age, health, smoking history, driving record, and more.
- Cash value accumulation: Some life insurance policies also provide cash value accumulation, meaning that a portion of your premium accumulates over time. These savings can begin to earn interest, ultimately adding up for you or your beneficiaries to use for long-term savings needs.
Types of Life Insurance
Choosing the right policy is your biggest decision regarding life insurance. A permanent life insurance policy offers guaranteed lifetime coverage and the ability to build cash value, making it a long-term insurance solution. When considering your options, it is best to get the assistance of an independent insurance agent who will take the time to assess your needs, understand your financial objectives, and help you fully understand your options.
Term Life Insurance
Term life insurance policies are one of the most affordable options. They provide coverage for a specific period or term. Because these policies are only active for a term, they will expire if the policyholder is alive by the term's end.
This is an ideal option if your beneficiaries have temporary financial obligations, but it is unsuitable if you have dependents.
Permanent Life Insurance
A permanent life insurance policy offers protection for the entirety of your life as long as the monthly payments are made. When choosing between term and permanent life insurance, a policy is ideal for those with disposable income and other investments. There are three major types of permanent life insurance: whole life, universal life, and variable universal life.
Whole Life Insurance
When you choose whole life insurance, the premiums will be fixed, offering a death benefit and a savings account. With this type of policy, a portion of your premium covers the cost of the specified death benefit, and the remaining portion of the premium is allocated to the savings account (i.e., cash value account) that grows at either a guaranteed or non-guaranteed interest rate, depending on the option selected.
Another benefit to this option is that you can borrow against your policy. The only potential downside of whole life insurance is that it is one of the most expensive options.
Universal Life Insurance
This type of policy offers greater flexibility than whole life insurance, such as the option to increase the death benefit if you pass a medical examination.
The savings component of this policy type (called a cash value account) generally earns a money market interest rate. After money has accumulated in your account, you can also alter your premium payments—provided there is enough money in your account to cover the costs. This can be a helpful feature if your economic situation has suddenly changed.
However, you must remember that if you stop or reduce your premium payment and the savings accumulation is exhausted, the policy might lapse, and your life insurance coverage will end.
Variable Universal Life Insurance
This policy type offers the features of a universal life policy coupled with the benefit of using the funds in the cash value account to invest in stocks, bonds, and mutual funds. With this type of policy, you have the investment risks and rewards characteristics of variable life insurance and the ability to adjust your premiums and death benefit characteristics of universal life insurance.
No-Exam Life Insurance
Unlike most policies, a no-exam life insurance policy does not require a medical exam. This option is more convenient but can come with higher premiums since it is more risky for insurance providers.
Supplemental Life Insurance
Many employers here in North Alabama offer basic group life insurance to their employees as an attractive benefit. If you participate in a group life insurance plan but want extra coverage to fill the gaps it leaves, a supplemental life insurance policy can help you do just that.
How Life Insurance Works
Life insurance is essentially a contract between you and an insurance company. In exchange for your regular premium payments, the insurance company promises to pay your designated beneficiaries a life insurance death benefit upon your passing. This death benefit can be a crucial financial resource for your loved ones, helping to cover a wide range of expenses such as funeral costs, medical bills, housing, food, education, and other essential needs. By understanding how life insurance works, you can make informed decisions to ensure your family’s financial security.
Death Benefit and Premium
The death benefit is the cornerstone of any life insurance policy. The amount of money the insurance company guarantees to pay your beneficiaries when you pass away. This sum can provide significant financial relief during a challenging time. On the other hand, the premium is the amount you pay to maintain your life insurance policy. As long as you keep up with these premium payments, the insurer must pay the death benefit to your beneficiaries. Understanding these two components is key to grasping how life insurance policies function.
Cash Value and Accumulation
Permanent life insurance policies, such as whole life and universal life insurance, come with a unique feature known as the cash value component. This cash value accumulates over time, serving as a savings account that grows on a tax-deferred basis. The cash value can be a versatile financial tool; you can use it to pay your premiums, borrow against it, or even withdraw from it if needed. This makes permanent life insurance policies a safety net for your beneficiaries and a potential source of financial flexibility during your lifetime.
Determining How Much Life Insurance You Need
Figuring out how much life insurance you need can be daunting, but several methods help simplify the process. One popular approach is the 10x rule, which suggests you should aim for a life insurance policy worth ten times your annual income. This can help ensure your family has enough to cover expenses and debts. Another method is the DIME formula, which stands for Debt, Income, Mortgage, and Education. This formula takes a more detailed look at your financial obligations to determine the right amount of coverage. Lastly, the Human Life Value philosophy calculates your lifetime income potential to provide a comprehensive estimate. Using these methods, you can better understand how much coverage you need to protect your loved ones.
Qualifying for Life Insurance
Qualifying for life insurance involves a straightforward but thorough process. You’ll need to submit an application and provide personal and medical information. The insurance company will then assess your risk through an underwriting process, which may include a medical exam and questions about your occupation, lifestyle, and other factors. The cost of your life insurance premiums can vary based on these factors, with healthier individuals typically enjoying lower rates. Understanding this process can help you prepare and increase your chances of securing the best life insurance policy for your needs.
Learn How to Get Life Insurance that Will Work for You
There are many life insurance policy options out there, making it challenging to find the right policy to secure your family for the future. At Pepper, Johnstone & Company, our mission is to simplify finding the right insurance policy for your situation. Our independent insurance agents will help you every step of the way, connecting you with the best policies that align with your goals and your budget.
Do you need to find the best general life insurance policy that will secure your family in the future? Call Pepper, Johnstone & Company at 256-232-7818 to speak with one of our insurance agents about our policy options.
Don’t Wait for a Life Insurance Policy; Get in Touch With Pepper, Johnstone & Company Today!
Choosing an independent insurance agency will help you to receive personalized assistance from local agents who can connect you with the best possible policy options. At Pepper, Johnstone & Company, our agents strive to provide insurance policy information and options that allow you to decide confidently. Call us today at 256-232-7818 to learn more about our insurance services in Athens or Huntsville, Alabama.