Choosing Life Insurance
Life Insurance provides peace of mind knowing that your loved ones will be financially taken care of after you die. It can help pay off debts, mortgages and car loans; cover funeral expenses and final expenses; provide income to your family after you die; and fund children’s college tuition and living costs.
There are many types of life insurance policies available. When choosing a policy, consider how much you need to protect your family and what type of coverage fits your needs and budget. It is also important to understand how a life insurance policy works, including its premiums, death benefits and cash value.
A life insurance policy is a contract between an insurer and an insured where the insurance company promises to pay a specified amount to a beneficiary upon the insured’s death. The insured can be a person, business, organization or trust. The death benefit can be paid either as a lump sum or as a series of payments. Some policies offer a cash value, which is similar to an investment account that earns interest over time and can be accessed by the insured for a variety of reasons such as paying premiums, purchasing additional life insurance or to supplement income.
Some types of life insurance are term life insurance which runs for a specific period of time, such as five, ten or twenty-five years. These policies are typically more affordable than permanent life insurance. They only pay out if you die during the term of the policy, however, so it’s important to choose a term that is long enough to cover your family’s needs.
Permanent life insurance is more expensive than term life insurance, but it offers a higher death benefit and can be kept in force for your entire lifetime. Some permanent policies offer a cash value which is a savings component of the policy that accumulates over time and earns a guaranteed minimum interest rate each year. The cash value can be withdrawn or borrowed against, but this will reduce the death benefit and policy value.
Other factors that may affect your life insurance rate include your age, sex, health and lifestyle. For example, smokers usually pay more for life insurance than non-smokers because of the risk associated with their habit. Your family medical history may also be a factor, as some conditions such as cancer or diabetes can increase the cost of life insurance. People who work in hazardous occupations, such as police officers and firefighters, or participate in high-risk hobbies, may also pay more for life insurance due to the increased risk of death.
Reviewing your life insurance policy periodically is important to ensure that it meets your current needs. Major life changes such as births, deaths, divorces or remarriages are good indicators that you may need to change your beneficiaries or adjust the policy’s death benefit. You can find tools on our website that can assist you with determining how much life insurance you need and helping you to shop for the best rates.