Choosing a life insurance plan takes a lot of time and energy, and it might sound like a very daunting task. It can also feel difficult on an emotional level. This process forces us to think about something we don’t want to happen. Life insurance is all about protecting your loved ones if something were to happen to you. Thinking about this is very hard for most people, and we understand that.
Plus, there are multiple options to consider including extra costs and add-ons. There are many small choices involved when picking the plan that’s right for you. The plan you choose can have high stakes for the loved ones that you leave behind.
It can help you and your family be prepared if something were to happen. Do you want to get the protection you need? Here are the basics about how to choose a policy that’s right for you without breaking the bank.
What is Life Insurance?
It is a contract between an insurance company and you. In this contract you agree to pay a monthly or yearly premium. In return, they will pay a set amount of money to the people you choose once you pass away. The people who receive this money are called the beneficiaries.
Why Should You Get Life Insurance?
One of the main reasons is to protect your family after you die. This money provides them with immediate income that they can use in a variety of different ways including for the funeral, everyday living expenses, or any other purpose you state in the will.
Types of Life Insurance Policies
There are two main types of life insurance. They are term life insurance and basic life insurance.
Term Life
Term life means you can buy a policy for a set length of time. A term is usually between 10 and 30 years. Within the “term” you can change the length of time if you would like to extend it. Term life insurance has no cash value. It expires at the end of the term unless it is convertible. This is the lowest cost option.
Permanent Life
Permanent life means the policy is for life. Some insurance companies might offer permanent plans that expire at age 65. There are also two types of permanent: whole and universal.
Whole life insurance has a set premium. It stays valid as long as you keep paying, and a cash value builds up overtime. If you surrender the policy that cash value may be returned to you.
Universal life insurance has investment options available. The premiums you pay might change over time based on how you decide to manage your plan. Your investments, cash values, and other options can impact how much you pay.
Convertible or Combination Life Insurance
Convertible life insurance policies allow you to start with a term life policy and eventually convert to a whole life policy. Instead of losing it at the end of the term, it just changes to a new one. It might prevent you from having to take a medical exam at an older age.
Combination life insurance policies are slightly different as they give you options to have a payout in circumstances other than just death. It’s more common that people choose a policy that combines with other coverage such as long-term care insurance.
Pros and Cons of Life Insurance
Here are some of the pros:
- Beneficiary can use the funds as they need.
- Financial security and peace of mind for your family.
- Fixed premiums so you know what to budget for.
- Some let you build savings through investments or borrow money from the policy later in life if needed.
Here are some cons:
- For whole life with cash values or universal life, investment options do not yield returns as high as other assets.
- For term life, if the death benefit is not paid after the term is up, any money paid into the policy is lost.
- Plans are cancelled if you don’t pay the premium, meaning you have to take out a new plan that may cost more.
How Much Life Insurance Do You Need?
This will depend on why you are buying it. If you wish to provide an income for your family in care you die unexpectedly, your lifestyle will impact how much you need to spend. Here are some questions you can ask yourself when you’re deciding on how much you need:
- How many years of income do you need to provide?
- Do you need to provide money for school or college?
- How much debt do you have? Do you want to cover this in your life insurance?
- Will your plan be used to pay your loans, medical bills, or mortgages?
- What investments and savings do you have now?
If you have a young family you might want to consider what their expenses will be until they are old enough to provide for themselves.
It’s important to remember to review your coverage every few years as your life changes and you want to make sure you have the correct plan.
How Much Does Life Insurance Cost?
These will vary depending on the type of plan you choose and how much the death benefit is. It can be as low as a few dollars a month or several hundred a month. Most insurance companies offer payment options to help make it more affordable.
If you’re worried about how much coverage you will need, reach out to an IBC life insurance professional or your financial advisor. They might also recommend ways to keep the costs reasonable if you’re worried about high premiums.
The cost depends on: age, medical conditions and current health, amount of death benefit, term of insurance, and if the policy has cash value. Overall, the younger you are and the better health you are in, the less expensive your life insurance will be.
