Frequently Asked Questions
Who needs life insurance?
Everyone needs life insurance, even young people. Life is not always fair, nor are the elderly the only ones who pass away. Life sometimes catches us by surprise by taking those we care about in ways we never expect. Life happens, and so do accidents, fires, disease, cancer, car wrecks, plane crashes, tornados, drownings, old age, heart disease, diabetes, and a litany of other problems that we cannot control. No one has the knowledge to determine exactly when their time comes. While the loss of a child is tragic and heartbreaking, the reality is that the child still must have some kind of final determination. Even cremation has a monetary cost. While they may not require a large amount of insurance, it is much better to have a small policy that will pay for those final expenses. Otherwise, that cost must come from the pockets of those who are still living. That may prove to be difficult in many instances.
For those who pass when they are older, the survivors must consider the loss of income that the deceased may have been contributing to the household. What that means is that the family not only loses the deceased’s income but must also bear the burden of the final expenses for their loved one from a much smaller income.
If a person passes who has been very successful and made a wonderful income, the family can probably afford the final expenses but should have life insurance to cover the potential loss of income. Another consideration for having life insurance is to guarantee that the lifestyle of remaining family members will not be overly affected and that the proceeds left by the deceased will be distributed according to the deceased’s final wishes.
It is also important that anyone who has a lifetime of accumulated assets (not just money) should also have a trust . This is an instrument drawn up by an attorney which specifically sets up the distribution of assets, medical power of attorney, living will, and numerous individual bequests that the deceased wishes to stipulate so that the family or executor of the estate knows exactly what to do with everything for everyone who is named in the trust.
The very well to do must also consider the estate taxes that may have to be paid to the government.
While dying may be a blessing in some cases, the consequences of dying are not easy to deal with in the best of situations and life insurance helps to alleviate the stress and worry of those left behind who must deal with those consequences.
What is the right kind of life insurance?
The answer to this question can be complicated. There are many things to consider. For many people, cost is a major consideration. Life insurance has a cost. Depending on the amount of insurance and the kind of insurance, those who purchase life insurance should be able to afford the cost without putting themselves in a financial bind.. There are several different kinds of insurance, and each one has a different cost based on who the insurance is covering, the age of the person being covered, the health of the person being covered, the ability to pay the premium, the company writing the insurance, the type of insurance (whole life, term life, universal life, juvenile life, or final expense). These are the primary types of life insurance.
Whole life insurance is not limited by time. That means that if you pay the premiums, monthly, quarterly, bi-annually, or annually, the insurance will remain in effect. It will only be canceled if you don’t pay the premiums. Most whole life insurance policies also build cash value which can be borrowed out of the policy and will reduce the amount of insurance unless it is paid back into the policy with interest. Cash value builds slowly over the years. Some policies will allow you to use the cash value to pay some of the premiums in certain situations which are specified by each company and policy.
Term life insurance is less expensive that whole life insurance because it only lasts for a specific period (usually, 10 years, 20 years, and some for 30 years) This is also known as temporary insurance, because once the term is over, the cost of the insurance tends to become perhaps 10X or more than the cost of the term insurance. Part of the reason for this is that the insurance company is now insuring someone who is 10,20, or 30 years older that the person they were covering when the policy was originally issued. When that happens, most people stop paying for the insurance because it is more than they are willing or able to pay.
Universal Life insurance is a form of permanent life insurance like whole life insurance but with some important differences because if you make minimal premium payments for too long, it can impact cash value growth and the size of your death benefit. Universal life policies offer permanent insurance coverage with flexible premiums and death benefits but with fewer guarantees. Universal life insurance is a flexible way to get a permanent life insurance policy and build cash value. The premiums are flexible: you can raise or lower payments within certain limits set by the insurance company. It offers lifetime coverage but has the added advantages of flexible payments and a flexible death benefit. Should your situation change, your universal life policy can adapt to those changes. Universal life insurance can offer a guaranteed death benefit, allows you to tap into the policy’s cash value, and may give you the flexibility to adjust your premium payments and death benefits123.
Juvenile Life Insurance is a permanent policy purchased for a minor child, usually under the age of 16, by a parent, grandparent, or guardian. These policies are a type of permanent life insurance that lasts for your child’s lifetime and pays out a death benefit at any age as long as sufficient premiums are paid. Juvenile life is usually very cost effective because the person being insured is a child who is hopefully healthy, and the cost is much lower for younger, healthy people. Juvenile life is often purchased for the very young (as young as 5 days). Juvenile life helps build a strong financial foundation for the child because is has a saving component.
Final Expense Life Insurance is essentially a type of whole life insurance with smaller face amounts that run between $1,000 and $25,000, though a few insurers can offer up to $50,000 in coverage. You might even hear these policies referred to as “burial insurance” or “funeral insurance,” since the idea is to use the death benefit to pay for end-of-life arrangements. In reality, there aren’t any restrictions on how the death benefit can be spent. This type of life insurance tends to be easier to qualify for than others. In most cases, final expense life insurance policies don’t require medical exams, so they can be a good option for someone with a pre-existing condition who can’t qualify for other types of life insurance. And since these are smaller face amounts, the monthly premiums are also less expensive relative to policies with larger death benefits.
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