Life Insurance can be a daunting subject when you initially come across it. In comparison to the concept of car insurance or house insurance, one could definitely have more questions surrounding life insurance. Though it may be anticipated to be confusing, life insurance can be understood simply! We’re going to break down for you the basics of life insurance, and hopefully share with you some things you hadn't already known!
The overall goal of life insurance is to ensure expenses are funded in the event that you die. It is a plan to pay a certain amount over a selected period of time, and when you die, your “beneficiaries” receive money. For example: Tom is a 30 year old man, he owns a house with his partner and is the main income source for his family. He is married and has a child, and hopes his child will one day go to college. His major expenses are his mortgage, his child’s future education, and his retirement savings for him and his wife. Tom is smart to set up a life insurance plan so that in the event of his death, his family will receive money to help pay for those major expenses.
To start, there are two main options for a life insurance policy, “Term Life” and “Whole Life”. Lets start with “Term Life”.
Term Life Insurance is a plan to be insured for a temporary amount of time. Term Life will generally cover insurance for limited periods of time such as 10 or 20 years. This means that in the event that you pass within your term, your family will receive some of the money. If you do not die during your set term, you would then require a new policy, and your beneficiaries do not receive the money. Term Life insurance is a good plan if you are just looking to ensure your beneficiaries would be able to care for expenses if you died within a coming short term, and after the term, you foresee yourselves having your expenses covered. For example, Tom is now 40 years old, his wife is now also employed and they are approaching a financially sound point. In 15 years, Tom and his family will have no mortgage and will have enough for their child to attend college. Tom still wants to ensure that in the event of his death within 15 years, his wife will be able to achieve financial stability on her own. He will pay a set premium for 15 years so that if he dies, she will receive the money.
Term Life Insurance is not the best deal for everyone, however. As the risk of ones death increases, there is a lesser likelihood that any Term Life Insurance plans would accept the individual to insure, and their premiums would significantly increase. For example, Tom, the 40 year old Non-Smoker in healthy condition is successful in receiving a Term Life policy, but Jim, the 70 year old smoking individual is likely not successful in receiving a Term Life policy, as his chances of death within that term are significantly higher.
If you are not applicable for a Term Life Policy, your next option is “Whole Life Insurance”.
Whole Life Insurance provides coverage as long as you live, and requires a consistent premium for life. There is also the option to create a payment plan to finish payments early, and live the rest of your life insured. This ensures that there is protection in place throughout your life, and also guarantees that when you die, your family/beneficiaries will receive the death benefit. Though this lifelong protection plan is more expensive than a Term Life policy, the Whole Life policy provides the option of Cash Savings, which can be extracted at any point of cancellation before death, and grow in interest.
We hope we were able to clear up any confusion around the concept of life insurance. Not so confusing, right?
If you have any further questions about life insurance, or would like to set up a life insurance plan of your own, contact us at our office! (705)-789-0101.