Many people want to know a number of things about life insurance before they can commit to buying a life insurance cover. For starters, a life insurance cover is a kind of insurance contract that will pay a lump sum to the dependents of the policyholder. However, the cost of this life insurance policy will be determined by factors like the health, age and lifestyle of the life insurance policyholder.
There are many questions that people may have about life insurance. Here, I will discuss four of these questions so that you can make an informed decision before you buy life insurance. Here are the four of the many questions that people ask.
1. Life Insurance. How does it work?
Life insurance coverage provides payment to your family in the event that you die. This is the reason this policy is known as life insurance. In most cases, the policyholder could be the breadwinner. This means that the absence of the policyholder would greatly affect the family's financial stability. When one purchases life insurance, they are in essence buying a contract with the insurance company that issues the policy.
The insurance company guarantees to pay a certain preset amount to the beneficiaries mentioned in the contract. However, this guarantee is subject to the insurance company's ability to settle the claims. Typically, the proceeds that the insurance company pays to your beneficiaries are free of tax. Your beneficiaries will receive the funds directly without the expenses and the delays that are commonly associated with a will.
2. What type of Life Insurance Is Available?
This is another common question. Life insurance can be categorized into two; term life insurance and permanent life insurance. A term life insurance policy will cover you for a specific period of time, say 10 or 20 years. At the end of the specified term of your coverage, you will stop paying premiums. If you die before the term of the policy, your beneficiaries will be paid the specified benefits.
On the other hand, a permanent life insurance policy will cover you till your death. As long as you keep paying the premiums, you can be assured that your beneficiaries will be paid upon your demise. Permanent life insurance, in most cases, will include some form of investment component and premiums paid for this policy will be higher than those paid for term insurance.
3. When is the right time to buy life insurance?
One of the factors that determines the cost of life insurance is age and health. Some employers may purchase life insurance coverage for you. However, you may need to consider purchasing life insurance coverage independently since the life insurance coverage through your employer is not portable.
The best time to buy life insurance is when you are young and healthy; in our twenties and thirties. As we grow older, and the aging process takes its toll, we are likely to become ill and this will have an impact on the cost of premiums. Life insurance premiums are more affordable when one is young and this is definitely the right time to buy a life insurance cover.
4. How much is life insurance necessary for you?
When calculating the amount of life insurance that you need, there are a number of factors that you may want to consider. Aspects of your financial status such as the liabilities you have accrued and the capital you have accumulated are considered. The amounts and specific costs that you would like your family to be covered against in the future may also be a factor to consider.
Another simple rule of the thumb is to buy life insurance coverage that is five to ten times your annual salary, your bonuses and so on. You can also consider the life insurance quotes online to offer you a better guide to the amount of life insurance that you may need for your family coverage.