Important things to know about life insurance
Millions of adults go to great lengths to protect their assets. Those measures run the gamut from simple everyday efforts such as utilizing two-factor authentication when accessing financial accounts via online or mobile banking apps to more complicated undertakings such as estate planning. Life insurance is a component of estate planning that is vital to anyone looking to protect their assets in the event of their death.
EXPLAINING LIFE INSURANCE
Life insurance is both similar to and different from other types of insurance. Like homeowners and auto insurance policies, life insurance provides financial protection in difficult circumstances. A life-insurance policy is a contract between an insurance provider and a policy holder that guarantees a payout to beneficiaries designated by the insured individual in the wake of that individual’s death.
PERSONAL HISTORY
Insurance providers differ, but individuals interested in life insurance can expect to be asked about their medical histories and lifestyle habits when discussing policies. Prospective policy holders will often be asked to sign waivers that allow providers to access their medical records. This is necessary so companies can get an idea of the health of the person applying for life insurance, which will determine the cost of a policy. That information, as well as family history, is important because it can serve as an indicator of future health risks. Some variables, including lifestyle habits such as smoking, won’t necessarily appear on an individual’s medical history. In an effort to address that, insurance providers typically ask prospective policy holders to answer a variety of questions about their lifestyle, including whether or not they smoke and how much alcohol they consume. It is vital that individuals answer these questions honestly, as a company can deny payouts to beneficiaries if it is determined that policy holders misled the company during the application process.
COVERAGE
Coverage needs vary, depending on the individual. Life insurance is intended to provide for loved ones in the aftermath of a policy holder’s death. How much money will those individuals need to pay their bills? Young adults who are just starting their families may want more coverage than aging adults who have already paid off their homes and saved a considerable amount for retirement. The National Association of Insurance Commissioners recommends that individuals ask themselves how much of the family income they provide and if anyone else, such as an aging parent, depends on them for financial support. Answering these questions can help people determine how much coverage they need.
TYPES OF COVERAGE
Insurance providers offer various types of lifeinsurance policies. Term-life policies are among the most popular because they tend to be affordable, while offering substantial coverage. There are different types of term-life policies, but policies tend to run for anywhere from 10 to 30 years and expire around the time individuals reach retirement age. That is because many people save enough for retirement and do not have the sizable expenses, such as a mortgage, to account for at this point in their lives. That means loved ones won’t necessarily need to be provided for in the wake of a policy holder’s death.
Permanent life-insurance policies last until the policy holder’s death as long as the individual continues to pay the premiums on time. Financial advisers can help individuals understand the ins and outs of the various types of permanent lifeinsurance policies, which differ from term-life policies because permanent policies can serve as investment vehicles and sources of loans in certain instances.
Life insurance is a vital component of asset protection that can offer peace of mind to policy holders who want to ensure that their loved ones are provided for in the wake of the policy holder’s death.