A life insurance policy is a necessity for anyone with loved ones who depend on them. This type of policy is essentially a contract between you and your insurance company: you will pay a monthly premium, and after your passing, your insurance company will provide the beneficiaries you have chosen with a death benefit. A death benefit is a one-time payment in exchange for the premium payments that you made during your lifetime. Your beneficiaries will be free to spend the money however they see fit, including for recurring bills like mortgage payments or the cost of education for a child. In short, life insurance allows you to provide your family with a financial safety net so they will be able to continue to afford the things your income paid for.
Types of Life Insurance
There is a wide variety of policies to choose from, meaning no matter your requirements and preferences, there is a policy out there for you. When you start looking for a policy, the first decision you’ll have to make will be between the two main types:
- Term life insurance
- Permanent life insurance
The best policy for you depends heavily on what you need, including whether you require a short- or long-term policy.
Term life insurance is the most popular type of policy because it tends to be the most affordable. With a term policy, you select a specific length of time that you want coverage, typically 10, 15, 20, 25, or 30 years. With that being said, you can get a policy for as few as 5 years, depending on your needs and what your preferred insurer offers.
Another plus to these policies is that your premium will never change during the time frame you choose. And as long as you have paid these premiums, if you pass away during the term of your policy, your beneficiaries will be able to file a claim for the death benefit and receive the money without having to pay taxes on it.
You may be able to renew your policy after the term has ended in one-year increments. This is referred to as guaranteed renewability. However, the price of your renewed policy will increase on an annual basis.
You will have to apply in order to get a term policy; your chosen insurer will determine your risk level before offering you coverage. This is known as “underwriting,” and it typically involves undergoing a medical examination to assess your health, as well as questions about your profession, hobbies, and your health history. Rates may increase if you engage in potentially harmful activities, such as scuba diving. Insurance costs can also go up if you work in a hazardous environment, like on an oil rig. It’s important to note, though, that there are certain term policies that do not require a medical exam, but they may be more expensive, or offer a smaller death benefit.
Permanent Life Insurance
A permanent life insurance policy remains in effect for the entirety of your life, provided that you continue to pay your premiums. This type of policy is generally more expensive than a term life policy because it will never need to be renewed.
There are several types of permanent policies, including:
Also known as traditional life insurance, this type of policy is guaranteed to remain in place for your life. Whole life insurance not only provides a benefit to beneficiaries upon passing away, but it also includes a savings component. Meaning you will accrue a cash value when you pay your premiums. Interest will also be accrued on a tax-deferred basis at a predetermined rate throughout the term of the investment.
Universal life insurance policies offer more flexibility when compared with whole life policies. You’ll be able to choose between multiple options for both your premiums and your death benefit. As well be able to change your premium rates throughout the life of the policy as your cash value grows.
These policies, like whole life policies, also have a cash value. Your premium price will include both the cost of insurance (COI), and the accrual of your cash value. The price of this premium will be dependent on your age and risk level.
Indexed Universal Life Insurance
The primary difference between indexed universal life insurance (IUL) and traditional universal life policies is how cash value is accrued. Instead of only being able to grow based on a fixed rate, the cash value with IUL can also grow based on a stock index. Which is a predetermined grouping of various stocks.
IUL provides the same flexibility to change your premium as your cash value grows as universal life does, with the potential to one day have all of your premiums paid for by the cash value you have accumulated. This is known as a “zero-cost policy.”
Variable Universal Life Insurance
The term “variable universal life” (VUL) refers to a specific type of permanent life insurance policy that includes an integrated savings component and makes provisions for the investment of your cash value. The premium is adjustable, just like it is with standard universal life insurance. The cash value can be invested thanks to the investment subaccounts offered by variable universal life insurance. The subaccounts perform a function that is similar to that of a mutual fund. These policies are “variable” since the returns you’ll see with your cash value account will vary based on market fluctuations.
When compared to traditional cash value or whole life policies, VUL insurance will give you greater flexibility and growth potential. But before purchasing this type of policy, you should carefully evaluate the associated risks.
Final expense life insurance, also known as burial, funeral, simplified issue, and modified whole life, is a type of whole life policy that is simple to qualify for. It also provides a modest payout in the event of your passing. This type of policy is an excellent choice for those who are looking for inexpensive whole life policies that have a death benefit ranging from $2,000 to $35,000.
The only big difference between final expense life insurance and other types of permanent life insurance is that this type of policy does not have a cash value. They also have a smaller death benefit as well as lower premiums. The death benefit of final expense insurance is intended to cover expenses for funeral or memorial service and burial/cremation. But with that being said, your beneficiaries will still be free to put the death benefit toward whatever they want.
The price of life insurance can vary quite a bit depending on a number of factors. The kind of life insurance policy that you purchase will be one of the most important determinants of its cost. For example, the same amount of coverage for a term life insurance policy will be cheaper than it will be for a whole life insurance policy.
Some other factors that can affect the price of your policy include:
- Your Age – Your premiums will be lower if you are younger, since you will be less likely to pass away in the near future.
- Gender – According to the National Center for Health Statistics, the average lifespan of a female is approximately four and a half years longer than that of a male. Because of this, in most cases, men pay a higher premium than women do. Except in Montana where insurers must provide gender-neutral life insurance rates.
- Health – Your life insurance premiums will be heavily influenced by the state of your health. So, your insurer will investigate your medical history as well as your current state of health. This helps determine how risky it is to insure you.
- Lifestyle – Your driving history (such as a conviction for driving under the influence of alcohol or drugs), criminal record, and dangerous careers and hobbies can all result in higher premiums for your life insurance policy.
How to Choose Your Coverage Amount
In order to estimate how much life insurance coverage you need, you should:
- Add up all of the expenses that you want to be covered for your family. Such as mortgage payments and the educational costs for your children. Then, consider how much of your income you would need to replace.
- Subtract from that the assets that your family could use to cover those expenses. Such as savings and life insurance that is already in place, for example. If your spouse will require money for retirement at some point in the future, you should not include retirement savings.
The amount that you are left with is the amount of coverage you should purchase for your life insurance policy. The amount might seem high after you do all of your adding and subtracting, especially if you have considered the cost of replacing your income for a number of years. But consider that your family will certainly need this money to cover the expenses they will be left with.
Remember, at EZ we will give you quotes for life insurance for free. So, it won’t hurt to price out the coverage you require. And buying sooner rather than later is always a good idea. Since you can buy what you can afford right now and lock in a good rate. If you choose to buy additional coverage at a later time, be aware that in a few years, you may be given higher rates because of your increased age as well as any health conditions you may have developed.
How to Choose the Right Policy
There are so many options when it comes to life insurance that it can feel overwhelming to make the right choice for you. So, the first thing you should do is determine whether you want term or permanent life insurance. If you only need life insurance for a limited amount of time, you should think about purchasing a term life insurance policy. For example, if you want insurance to cover your working years as a potential “income replacement”.
Term life is also an excellent option if your finances are tight. Since the premiums for term life insurance are significantly less expensive than those for permanent life. And if your needs change, you can usually convert your term policy into a permanent policy at a later time. You won’t have to reapply for life insurance or undergo a medical exam if you convert your term policy to a permanent plan. This is thanks to the term life conversion option.
A permanent life policy, on the other hand, is a good option for you if the accumulation of a cash value is a priority for you. But if you are purchasing a permanent policy only for the cash value accumulation. You may be better off putting your money into a savings or investment account rather than purchasing a permanent policy. This is especially true since beneficiaries are not typically intended to receive the cash value. Your life insurance company will typically receive ownership of any cash value left after you pass. Having said that, certain types of policies will offer the death benefit in addition to a cash value. But at a significantly higher premium.
How EZ Can Help
Everybody has their own unique set of requirements, priorities, and financial constraints. At EZ.Insure, we know that you want the best coverage for you and your family. But we also know that you have to stick to a budget. So, we are committed to finding the best policy for you at the best price. And we want to make doing so as easy as possible! We’re here to help you, and the best part is that all of our services are totally free. We will assist you with everything from answering all of your questions to the selection of a policy, the completion of the enrollment process, and assistance after your plan has been put into effect. To get started, simply put your zip code into the bar below or give us a call at 877-670-3560.