Life Coverage - Which One do You Actually Need?

Life coverage is essentially a pact between an assured individual and an insurance firm where, as long as an individual duly pays the charges, the family of the individual, upon his/her death, will receive an agreed sum of money.

Straight life insurance is when the policy remains in effect for one’s whole life, provided that premiums are duly paid. Term life insurance, on the other hand, only covers death before a specified time. After the termination date, several agreements allow the resumption of insurance, sometimes requiring a medical analysis to be done. Given how complicated the system is, definitely consult an agent in the field and your loved ones prior.

If you have no dependent that is financially able to pay for your funeral and other death-related costs, or you have sufficient funds to sustain your dependents after your departure, life insurance might be redundant for you.

However, if you’re the main breadwinner or have accumulated hefty debts that overwhelm your savings, you should probably get life insurance to financially protect your family in case of accidents.

The claim that it is easier to qualify for a policy at a younger age is but a myth. Insurance firms propagate this erroneous belief by making premiums cheaper when an insured party is younger because there are lesser chances for death and thus, payout. Premiums get more expensive with old age as the odds of death —and thus payouts— are naturally higher.

As such, it is easy to overlook the fact that just because we are younger, it doesn’t equate to higher chances of being eligible for policies. The higher premiums for older individuals is the insurance firms’ way of minimizing their losses from the higher risk of the individual passing away. Furthermore, these firms will welcome coverage for individuals who offer to get premiums according to their risk classification. The moral of the story is to get insurance on a need basis and not for fear of being ineligible in the future.

If you look at alternative modes of investments, you may not take life insurance as an investment, although some policies do invest your payments.

One such policy is the cash-value insurance, where you can earn interest from a sum of your money which insurance firms invest for their purpose. This is often lauded as a path to save up for old age.

This might be a great way if you are lazy to invest habitually. But, if you have the control to invest regularly, you can earn heaps more if you invest in mutual funds instead of the cash-value insurance. So, do your research before using an insurance policy as your investment.

Insurance agencies strongly encourage cash-value policies. Should you choose to terminate the policy and retrieve your seed money, you will still be charged for the premiums. That might not be as good a deal as you think as should you fail to pay before your untimely death, the sum will be charged on the payouts your family should supposedly receive.

Term insurance is free of such trickery. It is merely an insured party getting a payout if they die before a specified time, or getting nothing if they die after the policy expires. The objective of this is to cover you financially while you work your way to saving up enough to provide for yourself. That said, it is pivotal to get term insurance that is a good match. After all, everyone’s circumstances and needs vary and are best met by a flexible policy that provides as much assurance yet cost lesser than cash-value insurance. Furthermore, if you do your research right, you can compare and opt for the best premium rates.

Having a condition for term life policy renewal lets you restart your policy at a fixed rate without needing a medical analysis. That way, you can ensure coverage should you fall terminally ill right as your policy expires.

To be safe, the choice of modifying the policy terms lets you convert the nominal value of your policy into cash-value insurance should you still be financially unstable upon reaching retirement.

Evaluating the nominal amount of payout your policy should offer relies on some elements.

- Accumulated Loans
In order to completely pay off your card bills, mortgage, and other loans you may have, ensure that your policy covers the full amount and more for any accompanying charges or interest.

- Substitute For Income
The main purpose of life insurance is to serve as a substitute for your income, especially if you are the breadwinner in your family. So, ensure the payout is your income and more to buffer against inflation. If you need to hire a proxy to help you invest, include the expense in your payout. Once you have set the amount you need, begin exploring your options. Virtual insurance aggregators can also aid you in determining the amount of coverage for you.

- Insurance For Someone Else
You should ensure someone is insured only if their deaths would cause you monetary damage. For instance, fellow contributors to household income, business associates, co-homeowners, and any other party who bears a financial weight with you and whose death means a financial loss to you.

Six to 10 times of your yearly income is a general guide to the amount of life insurance you should have. Alternatively, you can multiply the years left to your retirement by your annual income.

You can also base it on the amount necessary for your dependents to sustain their lifestyle each year. By multiplying that amount by 20, the surviving dependents can use five percent of the death benefit yearly while investing the rest for returns greater than five percent.

For those who are getting insurance solely to settle loans, fortunately, more businesses are getting on board with this idea. Banks and credit card firms allow insurance offsets for your loans for a couple of dollars per month. Upon your death, your insurance will fully cover the debt. That said, ensure that you minus your outstanding debt from your analysis of coverage so that you don’t double count it.

Conclusion

Everyone’s situation differs which calls for unique, convertible terms of life insurance. So do your research prior to engaging an agent so you stay informed and save yourself losses such as paying unnecessary expenses or getting inadequate payouts.