Insurance: Life Insurance 101

Life insurance is often seen as something only necessary for those with families. While it’s true that having life insurance can be vital for those with dependents, it is also…

June 20, 2022

Written by Justin Sloan

Life insurance is often seen as something only necessary for those with families. While it’s true that having life insurance can be vital for those with dependents, it is also important for single people, childless couples, and business owners. Everyone should at least consider having some form of life insurance.

Even though life insurance is an essential part of any financial plan, many people don’t fully understand how it works or why they need it. They usually ignore the topic because they think it’s too complicated. However, the possibility of giving financial security to the ones you care about in case that something happens to you makes it worth taking the time to learn about.

In this blog post, we’ll explain everything you need to know about life insurance so that you can make an informed decision about whether or not it’s right for you. We’ll cover topics such as what is life insurance, how much coverage you need, the different types of policies available, and more. Do you want to be prepped and ready to make this important decision? Read on.

What Is Life Insurance And What Does It Cover?

Life insurance is a contract between you and an insurance company. You pay premiums, and the insurer agrees to pay a lump sum benefit to your beneficiaries if you die during the policy term. The size of the death benefit depends on the amount of coverage you purchase and your beneficiaries can use it for anything.

Therefore, a life insurance policy can help cover financial responsibilities such as:

  • Rent or mortgage payments.
  • Funeral and burial expenditures.
  • Supplement lost income to cover day-to-day expenses.

The policy usually covers homicide and natural and accidental causes of death. It also covers suicide in some instances, but it’s best to research the specific policy you want to purchase; there may be conditions that must be met before beneficiaries get their death benefit.

Benefits Of Life Insurance

Many people view life insurance as an unnecessary expense, but the truth is that it can be a vital safety net for your loved ones. Life insurance can give you peace of mind knowing that those who depend on you will be taken care of financially when you’re no longer there. It’s one less thing for them to worry about at an already difficult time.

To put some examples, if you have young children, life insurance can help ensure that they can go to college even if you’re not around to help pay for it. Or, business owners and entrepreneurs can benefit from life insurance to help their businesses stay afloat if they suddenly pass away.

Additionally, you can use a life insurance policy to avoid taxes since the death benefit of a life insurance policy usually is tax-free. Wealthy individuals sometimes buy permanent life insurance through a trust to help pay estate taxes after they pass away. This method helps preserve the estate’s value for their heirs.

The Different Types Of Life Insurance Policies

Life insurance comes in various forms to suit every need and preference. Depending on your budget and the level of coverage you’re looking for, there’s bound to be a policy for you. The most common types of life insurance are:

Term Life Insurance

This is the most basic and straightforward type of life insurance. It covers you for a set period, or “term” (usually 20-30 years), and pays out a death benefit if you die during that term.

  • Decreasing term life insurance is often used to cover a specific debt, such as a mortgage. The death benefit decreases over time, typically at the same rate as the debt is paid off.
  • Convertible term life insurance allows you to convert it to a permanent policy at some point during the term without having to go through another medical exam.
  • Renewable term life insurance provides a quote for the year you purchase the policy. Premiums rise each year and are typically the least priced term insurance at first.

Permanent Life Insurance

As the name suggests, this type of life insurance covers you for your entire life. There are several subtypes of permanent insurance, including:

  • Whole life insurance provides level premiums and guaranteed death benefits as long as you continue to pay your premiums. The cash value also accumulates over time, which you can access through policy loans or withdrawals.
  • Universal life insurance offers more flexibility than whole life insurance, as you can adjust your premium payments and death benefit amount. The cash value also grows at a variable rate, which may be higher or lower than you could earn in a savings account.
  • Indexed universal life insurance is similar to universal life, but with the cash value tied to an index, such as the S&P 500. This provides the potential for higher growth than a traditional universal life policy but with more downside protection than directly investing in the stock market.
  • Variable universal life insurance also has a cash value component that grows at a variable rate. However, you can choose to invest that cash value in different investment options, similar to a 401(k) or IRA. It also has flexible premiums and can be customized to have a fixed or growing death benefit.

One of the main distinctions between both types of policies is premiums—term life insurance is often far less expensive than permanent life because it doesn’t involve the accumulation of capital worth. However, no matter what type of life insurance you choose, it’s essential to ensure the policy is from a reputable company. Take some time to do your research and compare policies before deciding.

How Much Life Insurance Do You Need

The amount of life insurance you need depends on several factors, including your age, health, lifestyle, and financial situation. A general rule of thumb is to purchase a policy worth at least five to ten times your annual salary. For example, if you make $50,000 per year, you should look for a policy with a death benefit of at least $250,000.

Of course, this is just a starting point. You may need more or less life insurance depending on your unique circumstances. People who have young children or a lot of debt will likely need more coverage than someone who is single or has no dependents.

If you’re not sure how much coverage you need, a few online calculators can give you a general idea. However, it’s always best to speak with a financial advisor to get an accurate estimate. They can take all of your factors into account and help you choose the right amount of coverage.

How To Apply For Life Insurance

Applying for life insurance is generally a pretty simple process. You’ll start by taking a medical exam required for most policies. The examiner will take your weight, height, blood pressure, and other vital statistics. They may also draw blood and urine samples to check for tobacco use and other health conditions.

After the medical exam, you’ll complete an application; this will ask questions about your medical history, family history, lifestyle, and finances. Once you’ve completed the application, the insurance company will review it and give you their decision. If they approve you for coverage, you’ll need to pay your first premium. After that, your policy will be active.

Things To Keep In Mind When Deciding On A Policy

When deciding which life insurance policy is right for you, there are a few things to consider. First, think about your needs and objectives. Do you want a policy that’s just for coverage, or do you want one with cash value growth?

Another thing to consider is how long you need coverage. Term life insurance may be the best option if you only need it for a specific time, such as until your children are out of the house. However, if you need coverage for your entire life, permanent insurance is a better choice.

Finally, think about your budget. Life insurance policies can vary significantly in price, so you should find one that fits within your budget. Keep in mind that cheaper isn’t always better—a more expensive policy from a reputable company will likely be a better value than a cheap policy from a less-than-reputable company. Choosing the right life insurance policy is a big decision. With a bit of effort and some help, you can find the policy that benefits you the most.

Nesso Insurance – We Make Insurance Services Enjoyable And Easy

At Nesso Insurance, we offer a variety of life insurance policies to fit your needs. We also have experienced agents who can help you choose the right policy. Our team compiles all the necessary information to provide you with a quote so that you can make an informed decision.

Nesso Insurance is an insurance agency that cares deeply about its clients and works hard to deliver only enjoyable experiences. We understand that choosing a life insurance policy can be a daunting task. However, we’re there to help at all times. Let us take out the stress of finding a policy on your own so that you can focus on what’s really important: living your life.

As part of the Nesso Group, we share the goal of providing integrated solutions and comprehensive services to alleviate stress and elevate success. We guide individuals and businesses in multi-dimensional areas of expertise like insurance, taxes, accounting, Medicare, and more. Let’s work together with your best interest in mind!

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