Why is it that even though 85% of people say having life insurance is important, only 62% of people actually have it? The most probable reasons for the discrepancy are confusion and unanswered questions.
How much does life insurance cost? What type of coverage do I need? How do I get it? These are just three of the 10 frequently asked questions that you'll get answered when you read on.
1. How Much Does Life Insurance Cost?
This is usually the first question anyone asks regarding life insurance. Costs vary widely depending on age, health history, type of insurance, and coverage amounts. As a general reference, for a 20-year term policy worth $250,000, costs are approximately $27 per month or $330 annually for a healthy 25-year-old and go up from there.
To estimate your costs, try a Life Insurance Calculator.
2. What Are the Different Types of Life Insurance?
There are two main types of life insurance, term and whole life (sometimes called permanent life).
Term Insurance pays only if death occurs during the term of the policy which ranges from 5-30 years. Most term policies offer no other benefits. The biggest benefit for purchasing this type of insurance is its lower initial cost.
Whole Life (Permanent Life) Insurance pays a death benefit but also includes a savings account that grows based on dividends that the insurance company pays to you. The main disadvantage to this type of type of insurance is that the premiums are higher for the first half of your life.
3. How Much Coverage Do I Need?
If you have loved ones who count on you or your income, you should carry enough coverage to take care of them after you die. Take burial costs, mortgage costs, and future college or wedding costs into consideration along with how many year’s worth of income you’d like paid to your beneficiaries.
A life insurance calculator may help you estimate how much of a payout you need.
4. What is the Process for Obtaining Life Insurance?
There is a three-step application process for obtaining life insurance.
Physical Exam and Interview: This is usually done in your home and will take less than 30 minutes. The exam includes height and weight measurements, a blood pressure reading, collection of blood and urine samples, an electrocardiogram, and additional senior assessments if you are over the age of 71.
Medical History Interview: This telephone interview lasts approximately 20 minutes. You’ll answer questions regarding your insurance history, hobbies, family medical history, and medical information.
Underwriting: After all your information has been collected, the insurance company’s underwriter will establish your eligibility and ensure you get the lowest possible premium.
5. What if I Have a Pre-existing Condition?
There are some medical conditions (cancer, diabetes, high cholesterol, HIV, etc.) that may make it harder for you to obtain life insurance. If you are denied coverage, don’t worry, you can employ the expertise of an agency who represents many different insurance companies and who can shop around a lot quicker than you can.
Other options are to seek the help of an impaired-risk specialist or research information on Guaranteed Life Insurance.
6. What Should I Consider When Naming Beneficiaries?
One of the great advantages of having life insurance is that it can be paid immediately to your family or other named beneficiaries. When writing them into your policy, always name a secondary beneficiary in case you outlive your primary beneficiary. If a death, divorce, or birth takes place in your family, be sure to update your beneficiary designation as soon as possible.
7. If I Don’t Die Within the Term Limits, Does It Mean I’ve Wasted My Money?
No. If nothing else, you will have purchased peace of mind for you and your family with the knowledge that they would have been taken care of should you have died before the end of your term life insurance.
8. Does the Death Benefit Adjust for Inflation?
After adjusting for inflation, a $500,000 death benefit may actually be worth only $200,500 in 30 years. Before signing on a policy’s dotted line, be sure to ask your agent if the policy automatically adjusts for inflation and allows you to purchase more insurance later on if needed.
9. How Much Cash Value Is My Policy Worth?
Permanent Life Insurance policies accumulate cash value in different ways, but the cash value of your policy can range from $3,000 to $133,000 over your lifetime. Taking money out of your policy might reduce your death benefit, but the cash can be used toward policy payment, a loan, an investment portfolio, or to supplement retirement income.
10. How Do I Find a Good Insurance Agent?
One of the easiest ways to find a good insurance agent is through the recommendation of friends or through your lawyer or accountant. Shop around and before you sign on with an agent, ask about their background, experience, areas of expertise, and certifications.