What you should know before buying a life insurance policy

Nearly half of Americans (48%) are thinking more than ever about life insurance after the pandemic. A new survey conducted by Fabric, a life insurance company that creates free will, along with OnePoll, also found that 50% of Americans are still not confident in their understanding of how life insurance costs are determined.

I have found that many consumers, apart from not understanding the costs, are also unaware of how various life insurance policies work. I reached out to Allison Kade, Millennial Silver Expert at Fabric, to better understand the basic information consumers should know before purchasing a policy. Answers have been edited for clarity and length.

What types of life insurance are available to consumers?

There are many types of life insurance, but the two most common types are term life insurance and whole life insurance.

Term life insurance provides death benefits if you die for a certain period of time (hence the word “term”). For example, if you had a 30-year term policy, you would be covered if you died during that 30-year period. Many people choose term life insurance to help protect their loved ones during a specific time of great need, such as when raising children. After age 30, for example, your children might be out of the house and your life insurance needs might be less.

Term life insurance is usually purchased medically, which means the application takes your condition into account when determining coverage and cost. That’s why people take physical exams to be covered, despite Fabric being part of a new generation of companies using algorithms to allow many candidates to skip the medical exam.

What are the advantages and disadvantages of each type of policy?

  • The biggest advantage of term living is affordability. Term life insurance tends to be best for parents looking to protect their families while their children are growing up. The term of office you choose may vary.
  • The main downside to term life insurance, of course, is that it only lasts for that specific length of time. After your term expires, you have the option of letting your coverage expire, requesting a new term life insurance policy, or renewing your existing policy. Renewing or getting a new policy will cost a lot more because you’re older.
  • The main benefit of whole life insurance is that it lasts your entire life and never expires as long as you stay up to date with your monthly premium payments. This is particularly useful for those who have people who depend on them permanently, such as a disabled child who will need financial support until adulthood. The other whole-of-life benefit is that it creates a “cash value” component that you can withdraw or borrow against over time (although this can negatively impact the death benefit for you. your beneficiaries.)
  • The main disadvantage of all of life is that it is much more expensive and complicated. The fees for the investment or the cash value component are not always transparent, and monthly premiums can be much more expensive.

Why is it more important to have a life insurance policy?

The purpose of all life insurance is to help ensure a secure financial future for your family after your death. If you were no longer here, would your loved ones be forced to sell your house to meet the mortgage payments on their own? Could they afford your final expenses? Would they be able to maintain their current standard of living? How about paying off debts like student loans or credit cards? How about paying for college? Life insurance provides your beneficiaries with money that can help close this gap.

Many people determine the right level of coverage for them based on the needs approach. This would involve estimating how much money your family would need to replace your lost income and pay off your debts in your absence. It could also include one-time expenses like funeral expenses and running expenses (debt, mortgage, rent, groceries, etc.) after you leave.

Life insurance generally gets more expensive as you get older, which is a reason to apply sooner rather than later.

What should you ask before buying a policy?

Here are some questions consumers should ask themselves before purchasing a policy:

  • Can I apply online? Do I ever have to phone an agent who might try to sell me products that I might not need?
  • What coverage should I get for myself or my family?
  • Do I need to have a health exam to be eligible for coverage?
  • Do I feel that this company understands my needs?
  • Is the business financially stable?
  • Do they have good customer service?

Jeanette Pavini is an Emmy Award-winning journalist specializing in current affairs and consumer protection. She is the author of “The Joy of $ aving: Money Lessons I Learned From My Italian-American Father & 20 Years as a Consumer Reporter”. Jeanette contributes regularly to TheStreet. His work includes reporting for CBS, MarketWatch, WSJ Sunday, and USA Today. Jeanette has contributed to “The Today Show” and a variety of other media. You can follow his money saving tips and ways to give back. on Facebook: Jeanette Pavini: The joy of having a community. Find links to his social networks and his book on Jeanette Pavini.com.


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Justin D. O'Neill