Life insurance is an important financial product that can give your family financial protection and peace of mind. With the right policy, you can ensure your loved ones have access to the financial support they need if you’re unable to provide it.
We will cover everything you need to learn about this financial tool in our ultimate guide to life insurance.
What is Life Insurance?
In simple terms, life insurance is a contract between a policyholder and their insurer. According to the terms of this contract, the insurance company will pay out a specified amount to the policyholder’s appointed beneficiaries upon their death.
However, there are different types of life insurance, and each policy can vary dramatically. Insurance providers may offer a range of different policy options, so don’t assume that every plan is the same.
How Does Life Insurance Work?
The process starts with you selecting a policy that provides a payout following your death. If you were to die prematurely during the term, these policies could ensure that your family receives a payout.
When choosing a life insurance policy, you’ll need to select the term of the policy. Typically, you will make monthly or yearly payments to fund it. If you die while the policy is still active and your death is within the terms of your policy, then your beneficiaries will be able to make a claim and should receive a specified amount from your insurers.
The amount received is set by you when you initially take out the policy, although some insurance providers may allow you to modify the policy partway through the term.
If you do not die whilst the policy is still active, you won’t receive a refund on the payments you have already made, nor will the insurers make a payment to your beneficiaries upon your death.
Some feel this makes life insurance a somewhat risky investment, but the potential returns can be significant. In the worst-case scenario, they can provide much-needed financial support for family members who are affected by the death of a loved one.
Who Needs Life Insurance?
Most people can benefit from having a life insurance policy in place. While most people assume that you don’t need life insurance until you have a long-term partner and/or children, this isn’t the case.
Life insurance is an ideal way to ensure the financial protection of your children, spouse, or partner. However, you may want to consider taking out a life insurance policy even if you are single or unmarried.
Although you may not have a long-term partner or children, there may be other people who rely on you financially. By naming them as beneficiaries, you can help ensure that their financial needs are taken care of if you were to die before them.
Importantly, you never know what the future might bring. While you may not currently have a long-term partner or have children, you may in the years to come. By taking out a life insurance policy now, you could benefit from lower repayments and secure a higher payout amount.
Why You Need Life Insurance
As life insurance pays out upon the death of the policyholder, you may think that it doesn’t benefit you directly. However, life insurance allows you to plan for your family’s future, whether you’re here to enjoy it with them or not.
When people in your life depend on you for financial or practical support, it’s essential to consider their future needs. Although saving a proportion of your income can be an effective way of providing financial stability, the payouts offered by life insurance companies could far exceed the amount an average person can save.
This means that your loved ones could receive a considerable sum if you were to die before them. If you’re the breadwinner in your family, this is particularly important. When a family loses their primary provider, they can also face losing their home and their stability. As a result, the grieving process can be compounded by financial worries and instability.
Life insurance can ease the burden during this difficult time and help ensure that your family doesn’t have to worry about money while they are grieving your loss.
If you currently have people who depend on you, life insurance is a responsible way to provide for their future. However, even if you don’t have people who currently rely on you financially or practically, taking out a life insurance policy can still be a wise decision.
You may have concerns that your parents or older relatives will need support in their later years, for example. If you weren’t around to provide this, how would they cope? With life insurance in place, you’ll likely have peace of mind that your chosen beneficiaries will be well provided for, in the event that anything was to happen to you.
Obviously, no one likes to consider the possibility of passing away. Still, it is something that requires careful planning and consideration. As well as providing your loved ones with practical and financial support, taking out a life insurance policy shows that you have their best interests at the forefront of your mind.
What Size Policy Do I Need?
Deciding how much life insurance you need can be tricky. It’s tempting to make an arbitrary decision, and this is something you need to consider carefully. When you think about the financial expenditure your family may incur in upcoming years, you can get an idea of just how much life insurance you might require.
When determining how much life insurance you may need, remember to consider the cost of the following expenses:
- Housing costs/Mortgage
- Home insurance
- Medical bills and insurance
- School and college fees
- Utility bills
- Cost of vehicles and insurance
- Day-to-day living expenses
- Cost of elder care and support
In addition to this, you may want your life insurance policy to cover additional costs, such as holidays or the future weddings of your children. By selecting a comprehensive life insurance policy, you can ensure your family can continue to enjoy the lifestyle to which they’ve become accustomed to.
Furthermore, choosing a robust amount of life insurance helps to protect against unforeseen expenses. For example, if your home was irreparably damaged, the savings put aside from a life insurance payout could enable your loved ones to rebuild or find a new place to live.
When taking out life insurance, people often assume that they should simply match their annual income. However, this won’t necessarily provide your family with the on-going financial support they need. In addition to this, one year’s salary won’t typically be enough to protect them from unexpected incidents and expenditure.
If you remain living, you may provide for your family and dependents for years to come. When you consider your earning power over this period of time, you’ll get a more realistic idea of just how much it takes to provide long-term financial protection for your loved ones.
Thoroughly assessing the financial needs of your dependents and family members can take some time. If you’re unsure exactly how much life insurance you need, it can be useful to seek professional advice. With assistance from a recognized broker or life insurer, you can ensure that you have an appropriate amount of life insurance in place, should it ever be needed.
Types of Life Insurance
There are various types of life insurance policies, and it’s important to understand the difference between each one. By learning more about what different life insurance offers, you can make the right choice for you and your family.
Whole Life Insurance
This type of insurance covers you for your entire life, so your family will receive payment regardless of when you die. Whole-life insurance policies offer a cash accumulation value, as well as death benefits. Some of these insurance policies may allow you to withdraw or borrow from the cash value while you are still alive.
Term Life Insurance
When you take out term insurance, you’ll be able to choose how long you want the policy to last. For example, if you select a term of 20 years, your insurer will make a payout if you die within this timeframe, but not if you outlive the term of the policy.
Decreasing Term Insurance
Decreasing term insurance policies are active for a specific period of time, just like term insurance. However, decreasing-term insurance means that the payout amount reduces over time. This type of policy is often suitable for people who expect their family’s expenditure to decrease as the policy matures.
Increasing Term Insurance
Working on a similar premise to decreasing-term insurance, an increasing-term life insurance policy will increase the payout amount as the policy matures. While the limited term of the policy means it will only be active for a set amount of time, the total value of the policy increases as time goes on.
Renewable Term Insurance
Taking out renewable term insurance gives you the option to renew the policy if you’re still living when the original term expires. Some insurers require applicants to undergo medical checks when taking out life insurance. However, some companies allow you to negate the need for these additional tests and renew your life insurance policy without them.
Joint Life Insurance
Many couples choose to take out joint life insurance policies so that the living spouse will be provided for upon the death of their husband or wife. However, this type of policy will only typically payout once.
When the last living policyholder dies, there will be no additional payouts to alternative beneficiaries. In contrast, two single, separate policies would payout upon the death of each policyholder.
There are different types of life insurance available, but there is more to consider when it comes to selecting a policy. Many insurers will allow you to decide exactly what you want your life insurance policy to cover.
If you want your insurance company to payout regardless of how you die, you may want to opt for a policy that covers both death by natural causes and by accident. Alternatively, you could select a life insurance policy that only covers either natural deaths or accidental deaths.
With so many variations, it’s easy to get confused over which type of policy is best for you and your family. Reputable life insurance companies will be able to discuss their available products and provide in-depth information regarding the benefits of each policy option.
Additionally, independent insurance brokers can help you to locate the best insurance policy for your needs. A certified financial advisor could also help you to establish just how much life insurance you need and what type of policy fits your needs.
Is Term Life Insurance Better than Whole Life Insurance?
There are different benefits to all types of life insurance, but we feel that term life insurance is a better option than whole life insurance. There are many reasons why term life insurance can be a better option for your family than whole life insurance.
1. Affordable Premiums
Whole Life Insurance is designed to pay out upon your death, regardless of when this occurs. Due to this, the cost of whole life insurance can be significantly higher than term life insurance. If you are unable or unwilling to commit to making higher payments, you may find that term life insurance is a better option for you.
2. Potential to Convert Policy
If you take out a term life insurance policy, you may want to reserve the right to convert the policy at a later day. Some insurers will allow you to convert your term life insurance to a whole life policy or to renew it when the term runs out.
However, it’s important to clarify this before you take out a life insurance policy, as not all insurance companies offer this feature. If you do reserve the right to modify, extend, or convert your term life insurance policy, you retain control over the amount of coverage in place and keep your options open for the future.
3. Medical Checks
Many whole life insurance policies require applicants to undergo comprehensive medical testing before they provide you with an accurate quote. This can postpone the process of getting life insurance and maybe a barrier to getting your finances in order.
Although some term life insurance policies also require medical checks to be carried out, this isn’t always the case. In fact, some of the most reputable companies, such as SureLI, enable you to purchase term life insurance without undergoing any medical checks or tests.
If you want a stress-free purchasing experience or you want to get your life insurance sorted out quickly, choosing a term life insurance can enable you to do so.
3. Cash Value
Whole life insurance can take quite some time to provide a good return on investment. When you’re paying into a whole life policy, you may find that the potential payout in the first 10-15 years of the policy is relatively low. If the payout amount is directly linked to your monthly or annual payments, this could be a real concern.
Although many people find term life insurance is a better option for them than whole life policies, there is no ‘one-size-fits-all’ solution. Keep an open mind, conduct research, and seek advice on this decision. Take the time to make the right decision for you and your family.
How Much Does Life Insurance Cost?
The cost of life insurance can vary quite dramatically. When calculating the value of your premiums, insurance companies will look at a variety of factors, including:
- The proposed term of the policy.
- The health and medical history of the applicant/policyholder.
- The value of the policy.
- Whether the policy covers natural deaths and accidental deaths.
- The age of the applicant/policyholder.
- The lifestyle of the applicant/policyholder.
- The occupation of the applicant/policyholder.
Depending on your circumstances and the level of your cover you’d like, the cost of life insurance can vary from a few dollars a month to hundreds of dollars. However, there are plenty of affordance life insurance policies that are designed to offer a reasonable amount of coverage based on relatively low monthly or annual payments.
It’s important to remember that many life insurance policies have specific exclusions included as standard. Your life insurance may not pay out if you are killed while participating in certain potentially risky activities, such as base jumping or parachuting.
Although there are policies designed for lovers of extreme sports, it’s important to check whether or not your proposed policy covers your lifestyle choices. If you do choose a policy that includes this type of coverage, you can expect it to cost a little more.
Ultimately, the cost of your life insurance policy will depend on a variety of personal factors. However, policy premiums can be reduced or increased by modifying the specific terms of your policy.
How Can I Get Life Insurance?
Finding the right life insurance policy couldn’t be easier, particularly now that the internet enables you to purchase life insurance direct from providers. If you want to buy life insurance, there are various avenues to explore.
An insurance broker can help you to find the best policy for you at the most competitive rates. With an in-depth insight into the market, a life insurance broker may be aware of less well-known policies that offer advantageous terms.
However, some brokers are affiliated with specific insurance providers or receive a financial incentive for recommending their products. Keep this mind when seeking advice and consult an independent insurance broker if you want a genuinely impartial opinion.
Obtaining online quotes is a simple way to gauge the cost of different types of life insurance policies. In addition, you can receive quotes from a number of different providers and determine which firms are offering the most competitive insurance products.
Online comparison sites are a great way to obtain multiple quotes at once. You’ll need to input your personal details and policy requirements once to obtain quotes from numerous insurers. However, not all insurers are featured on these sites, so be sure to shop around and consider other providers too.
Direct with Insurer or Online Agent
Contacting a trusted online insurance agent, such as SureLI, means you can take out life insurance policy quickly. As well as getting detailed information about the plans they have available, you can discuss each policy option in-depth with their customer care advisors. If you have queries about policy terms or you want to clarify any details, speaking with the company directly can enable you to get the information you need as quickly as possible.
How to Apply for Life Insurance
Applying for life insurance can be extremely easy or somewhat time-consuming, depending on which insurance company you choose.
To offer life insurance policies, companies must calculate the risk you pose to them. Clearly, if they were to pay out on every policy, they would make no money. Because of this, insurers are always keen to make an accurate assessment of your application. One way that they do this is by calculating the likelihood that they will need to make a payout.
To do this, many life insurance providers require in-depth information regarding your lifestyle and health. As well as using biometric testing to determine your specific risk to them, they may ask for a comprehensive history of your health. In some cases, you will need to supply certified documentation to confirm your health history and status.
In addition to this, some policy providers will require you to undergo medical testing before you can purchase life insurance with them. Once a medical examination has been carried out, the physician will compile a report which will be sent to the insurance company. With this information, they will determine the risk you pose to them in terms of costs and offer you a policy accordingly.
However, you don’t have to undergo medical testing or provide a detailed medical history to take out life insurance. With many providers, such as SureLI, you can purchase insurance without the need to attend medical examinations and screenings. This reduces the time it takes to obtain life insurance and ensures the entire process is efficient, straightforward, and hassle-free.
How Do I Know if I Am Approved?
Once you make an application for life insurance, your chosen provider will assess your application. If necessary, they will ask you to submit further information, clarify specific details, and potentially attend a medical assessment.
If they can offer you a policy, you’ll receive confirmation of your proposed life insurance plan to accept. If you’re still willing to move forward, you’ll need to give your authorization and begin making the appropriate payments.
With the right provider, taking out life insurance can take just a matter of minutes. With a simple online or telephone application, you can provide all the information you need to and obtain a tailormade quote instantly. From there, you simply need to accept their offer and confirm the contract.
How Does Using Life Insurance Work if Something Happens?
If you’re a life insurance policyholder and you die while the policy is active, your appointed beneficiaries will receive a payout in accordance with the terms of the policy. Of course, your insurance company will need to be notified of your death so that they can begin processing the claim.
Typically, a life insurance company will require a certified copy of the death certificate, as well as a claim form completed by the beneficiary or beneficiaries. Depending on the cause of death, there may be additional forms to complete or documentation to provide. If you die abroad and your policy covers this, for example, your beneficiaries may need to submit a completed Foreign Death Questionnaire, in addition to the standard documents.
Of course, when beneficiaries are making a life insurance claim, they are grieving the loss of a loved one. Choosing the right life insurance provider will ensure they can speak with compassionate, caring staff and benefit from efficient claims processes.
Does Life Insurance Affect My Credit Score?
Life insurance policies do not typically affect your credit score in any way. If you’re worried that a poor credit rating will prevent you from purchasing life insurance, you needn’t be. It’s not usual for life insurance providers to submit any of your details or payment history to credit agencies or bureaus, so this isn’t something you generally need to be concerned about.
Similarly, your credit score shouldn’t impact your ability to purchase life insurance. Some providers may take your credit history into account, but having a low credit score isn’t a barrier to finding affordable life insurance with proper levels of coverage.
As every policy and provider is different, it’s important to check the exact terms of any proposed agreements before you make a decision.
Get Term Life Insurance Today and Protect Your Family
Protecting your family is your number one priority throughout your life, but your responsibilities don’t end there. By taking out life insurance, you can ensure that your dependents are supported throughout the remainder of their lives. Similarly, you can ensure your extended family is also afforded practical and financial support by naming them as beneficiaries on your life insurance policy.
Although you may not want to consider the possibility of leaving your family, life insurance gives you peace of mind that your family will have the financial protection they need if the worst should happen. With a range of affordable, budget-friendly plans to choose from, you can obtain comprehensive coverage from as little as a few dollars a month.
What’s more, you could compare and confirm your chosen life insurance plan within a matter of minutes when you complete an application online or over the phone. If protecting your family is your top priority, take a few moments to find the right life insurance now and purchase your plan today using this guide.
Will you be taking the first step with SureLI today? Do you already have life insurance? Let us know in the comments!
Samantha uses her BS in Finance and MBA to help others control their finances through budgeting, saving, investing, side hustles, and travel hacking. Due to following the FIRE Movement’s principles, she was able to quit her high-stress job in the financial services industry in July 2019 to pursue her side hustles. She is now a full-time entrepreneur, freelancing coach, and blogger.