Ask any average citizen to explain life insurance to you, and you’re more likely to be met with an awkward silence than a stream of accurate, actionable details. Yet, with all the intricacy involved in the insurance world, this shouldn’t come as much of a surprise. After all, even seasoned industry professionals go to great lengths to keep up with the latest developments. We know life insurance remains a mystery to many consumers, despite its intrinsic value. So, to help you figure out how coverage works and how it can benefit you and your family, let’s run through some of the most frequently asked questions regarding life insurance.
Do I really need protective life insurance?
Like all forms of coverage, life insurance is designed to provide peace of mind, serving as a precautionary measure should disaster strike. In this case, it provides a financial safeguard following the death of a family member, especially those who provide the bulk of their household’s income.
During the duration of your plan, your premium payments will go toward financial protection from your insurance company, and, upon your death, the designated sum is directed to the listed beneficiaries. Although your specific need for life insurance may vary, sufficient coverage can often make a life-changing difference in keeping surviving family members afloat, covering expenses, debts and any lost income.
When is the best time to get life insurance?
Sooner is truly better to create a life insurance plan once you and your family decide that it could benefit you. The older you get, the more difficulty you’ll face in qualifying for plans, and even then, rates are bound to be more expensive than when you were young and without pre-existing health conditions.
Aside from acting quickly once need becomes apparent, certain life events lend themselves to starting a new plan. For instance, if you’ve recently gotten married, had a baby or purchased a house, the time may be ideal to start or increase your life insurance coverage. That way, your family will be taken care of no matter what happens to you.
What if I already have an existing plan?
Some people may receive some life insurance coverage through their employers, but make no mistake. In most cases, these policies provide only a fraction of what you’ll need to leave your family in a stable financial situation following your death. Moreover, they are often contingent on you staying with the company. If you leave for any reason, you and your family may be left with no coverage at all.
Rather than relying on your current plan, you should regularly evaluate your coverage to ensure that your data is updated and that the coverage level meets your needs. As with the beginning of a new plan, major life events – such as change in marital status, home ownership and childbirth – will influence the decision to alter your coverage accordingly.
How much does life insurance cost?
As you might imagine, the cost involved in a life insurance plan is often the first concern that many consumers have. Unfortunately, there’s no one-size-fits-all answer for how much a life insurance plan will cost. Instead, there’s a number of factors that play integral roles in calculating what an individual’s premium and associated costs will ultimately amount to, including the type of life insurance plan and how much coverage you want.
Life insurance companies also take into account risk factors and lifestyle choices for each prospective policyholder. For example, a person’s overall health, age and even occupation may guide a company’s decision to insure them. Before you decide on a specific provider, consider all your options and compare quotes, as they are likely to vary widely.
Are there different types of coverage?
While available plans may change from one provider to the next, there are essentially two major kinds of life insurance: term and permanent.
- Term life insurance: You might have guessed by its name that this option is a temporary one, and indeed it is. For term plans, you would pay a fixed premium for a predetermined period of time, and if your death does not occur during this time frame, you would need to purchase a new policy to remain covered.
- Permanent life insurance: This type of insurance plan has no such limits, as they are designed to keep your policy active for a lifetime. In addition, some permanent plans offer policyholders the option of borrowing money against the value of their policy, though this adversely affects the death benefit and resulting value.
How much life insurance should I get?
Once you’ve decided what type of plan you want, the next step is often to settle on how much coverage you and your family need. As you may surmise, this depends on your current financial standing as well as any anticipated obligations that would need to be addressed in the event of your death. These include not only living expenses but also considerations such as educational and retirement needs.
Your family may very well have resources they could turn to other than your life insurance plan, such as other sources of income, savings, investments and other assets. In this instance, you should mitigate the amount of coverage you purchase based on the difference between your available resources and your expected financial needs, or you may wish to allow an insurance agent to assist you in doing so.
Why do I need a beneficiary for my plan?
One of the most central elements of your life insurance plan is, of course, your beneficiary. This individual (or group of individuals) will be the designated party that benefits from your policy upon your death. If you fail to identify a beneficiary, this decision typically refers back to your insurance agreement.
However, since circumstances often change, we highly advise that you be perfectly clear regarding who should receive the proceeds of your plan. Since your cumulative investment in life insurance is sure to be considerable, it’s essential that your wishes are carried out as desired. So review your beneficiary information annually to verify that it has been updated.
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In the meantime, you can find more information on our life insurance products at AAA.com/Insurance.