There is nothing more reassuring than knowing your loved ones will be taken care of after you are gone. Often people are uncomfortable acknowledging that they need life insurance simply because they are uneasy thinking about the concept of death — especially in relation to their own. But while discussing death can be difficult, planning ahead and purchasing life insurance is one of the most loving ways you can provide for your family, friends and others you care about.
words you should know
Here are some commonly used terms you might see when you’re looking at life insurance plans.
- Beneficiary – The person or organization designated by a policy holder to receive the proceeds from an insurance policy.
- Policy proceeds – The money that is paid to a beneficiary as a result of an insurance policy.
- Term – The period of time for which insurance coverage is provided under a policy, usually 5 to 30 years.
why do i need life insurance?
If you have significant financial obligations, a spouse or dependents, you should seriously consider life insurance. Without adequate life insurance coverage for yourself, your loved ones could be left swimming in a sea of debt after you are gone. The next time you sit down to pay bills with your partner, consider: Who would pay for your portion of the mortgage in the event of your death? What about your child’s activities, clothes, health care and possible college tuition?
Life insurance provides a means to cover these expenses, in addition to medical bills, funeral costs, taxes and more. This type of coverage also allows you to leave a legacy in the form of an inheritance to your children or other beneficiary, such as a charitable organization, after your death.
types of life insurance
There are two basic types of life insurance — Temporary (term) and Permanent (Whole).
Term life is considered temporary life insurance. It provides flexible, lower-cost coverage for people who need coverage for a period of time — generally from 5 to 30 years. The basic idea behind term life insurance is pretty simple: If you die during the time frame specified in your policy, your beneficiaries will receive your policy’s proceeds.
Permanent life insurance is an umbrella term for life insurance policies that do not expire. Typically, permanent life insurance combines a death benefit with a savings portion.
The two primary types of permanent life insurance are whole life and universal life. Whole life insurance offers coverage for the full lifetime of the insured, and its savings can grow at a guaranteed rate. Universal life insurance also offers a savings element in addition to a death benefit, but it features different types of premium structures and earns based on market performance.
review your policy
Over the course of your lifetime, you may want to combine shorter- and longer-term policies to meet your family’s changing needs. To make sure you have enough coverage, review your life insurance policy with an insurance agent each time you make a big change in your lifestyle — not just when your term expires, or your policy is up for renewal. Here are some specific life events that should make you think about changing your life insurance coverage:
- The birth or adoption of a child
- Marriage or divorce
- Buying a home or downsizing to a smaller residence
- Changing jobs
look out for scams
With Internet scams and mail fraud on the rise, it’s very important that you do your homework when dealing with unfamiliar insurance companies. If you receive a life insurance offer that sounds too good to be true, it probably is. Most insurance companies have financial strength ratings from independent organizations such as A. M. Best Company, Standard & Poor’s and Moody’s Investor Services. Look for companies with “A” ratings or better. Or, check an insurance companies’ complaint records with your state department of insurance before you buy.
It’s never easy to talk about dying — particularly your own death. But death is much easier to face when you know that your affairs are in order. In fact, many find great comfort in planning the legacy they will leave for loved ones.