Top 10 Life Insurance Questions
Planning to buy life insurance? You probably have a lot of life insurance questions, especially with all the options in the market today.
So let’s start with the basics: what is life insurance and what is it for?
Life insurance is a great way to protect your family or anyone who relies on you financially. If you have an active life insurance policy when you die, your insurance company will give your beneficiary a lump sum called the death benefit.
Your life insurance is a contract between you and the insurer to safeguard your loved ones from financial troubles when you pass away.
Choosing life insurance that will work best for your needs can be overwhelming. Here are ten life insurance questions answered to help you decide.
1. Why should I purchase life insurance?
Your life and financial obligations can help you determine if you need life insurance. Here are the main reasons to purchase it:
- It will help your loved ones handle expenses for burial when you pass away.
- It can be used to pay the mortgage and other outstanding debt in the event of your death.
- It can be used to support your family even after your death.
- It serves as an income replacement to help your family maintain the lifestyle they are accustomed to.
2. How much does life insurance cost?
It varies with every company and the coverage amount.
The insurance underwriter checks your age, health, history of tobacco use, and other risk factors like hazardous hobbies which may all contribute to the final cost of your monthly, semi-annual, or annual premiums—which is what you pay to the insurer for the insurance.
Life insurance commonly costs less when you’re young and healthy. Meanwhile, people with poor health incur higher premiums.
Your application for life insurance can also be denied if you have medical conditions such as cancer, heart disease, or dementia.
3. Do I have to take a medical exam?
Most life insurance plans require medical exams before the policy takes into effect. There’s no need to avoid the exam if your health is good. Policies with exams help you be open to more options or get better rates.
Some companies don’t require medical exams to get covered and will simply ask basic health questions. Take note that you might pay more and receive a lower death benefit with this option.
4. Who should I add as my beneficiary?
Anyone in your family who may struggle financially such as your spouse, live-in partner, or parent, can be a beneficiary. You can update revocable beneficiaries at any time.
It’s best to add a secondary beneficiary in case you outlive your first beneficiary. Be specific with the beneficiary’s name to avoid any issues.
5. What are the basic types of life insurance available?
Term insurance and permanent life insurance are the main types of life insurance.
Term life insurance costs less and covers you for a fixed period, usually around 10 to 30 years. Your beneficiary can claim the death benefit when you die within the period set.
Permanent life insurance is an umbrella name for life insurance that doesn’t expire as long as you’re paying for the premium. It’s more expensive and more complicated than term insurance. It builds a cash value component, making it some sort of saving/investment while still giving your beneficiary a death benefit when you die.
6. Can I buy more than one life insurance policy?
Yes, if there is a financial need or insurable interest for it. The insurer is more interested in the total death benefit amount you will receive than the number of policies you have. However, having too many will raise a red flag and your application can be denied.
7. Are there any taxes with life insurance policies?
Usually, the death benefit is not counted as a taxable income. Most types of life insurance are income-tax-free, but there are a few exceptions.
8. What are life insurance riders?
Life insurance riders are extra benefits that you can buy to amplify your life insurance plan. The options depend from company to company. The most common riders are:
- Accidental death benefit rider – An additional coverage if the insured’s death is accidental.
- Waiver of premium rider – Relieves you from paying the premiums if you become disabled or unable to work.
- Disability income rider – This pays a monthly income if you cannot work for several months or longer due to a serious illness or injury.
- Accelerated death benefit – Allows you to have a significant portion of the death benefit while you are still alive if you want or need to use the money.
9. What will happen when a life insurance policy lapses?
You won’t be able to enjoy the coverage from the policy, and will also not be eligible for any death benefit. There is a grace period of 30-31 days so try to pay your life insurance within before it lapses.
You may still reinstate a lapsed policy. Pay backdated premiums and follow other guidelines specified by your insurance company.
10. What can I do if I can't pay the premiums?
If you can’t afford the premium anymore, you can let drop life insurance or sell it if you’re an older adult.
A life settlement is an option for seniors who want to get a cash lump sum that is more than the cash surrender but is less than the death benefit. You can use the money for medical care, life enhancements, and other immediate financial needs.
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