Insure your life for those who matter to you. Life insurance is a way to protect your survivors and dependents against financial hardship. A life insurance policy is a legal agreement between you and an insurance company in exchange for the premiums paid by the policyholder that guarantees payment of the face value of the policy, upon death. Life is precious but death is inevitable. While you can’t change fate, you can prevent your family from facing financial hurdles in the event of your untimely demise.
The decision to buy insurance to protect against a certain risk is usually based on some determination that there aren’t sufficient personal resources to cover the resulting financial loss. A life insurance policy can go a long way to ensure the future financial security of your spouse, children or extended family members. Later in life it can be used to ensure that legacy you dreamed of. It can also be the tool relied on the preserve your family wealth and transition it to the next generation with reduced estate tax consequences. A loss of income due to a premature death, disability or critical illness will usually require a significant amount of capital in order to replace it.
What is Life Insurance?
Life insurance is a way to protect your survivors and dependents against financial hardship. A life insurance contract or policy is a legal agreement between you and an insurance company that guarantees payment of the face value of the policy, upon death. Life insurance is a legally binding contract between the insured individual and the insurance company. Monthly or annual premiums are paid in exchange for beneficiaries to potentially receive a lump-sum payment, also known as a death benefit.
The concept of insurance goes back to the days of the Romans, but it wasn’t formalized until the 18th century. Essentially, it’s a means of spreading financial risk among a large number of people who pay into a fund or pool. In this way, the cost is minimized for those who suffer an unexpected misfortune.
What are the 3 Main Type of Life Insurance?
The three main types of life insurance are:
What Age Should I Get Life Insurance?
The best time to get life insurance was yesterday if you have a need to protect your family. Generally, the younger and healthier you are when buying life insurance, the less expensive the premiums.
How Much Life Insurance Dou You Need?
How do you figure out how much life insurance you need? A ballpark measure sometimes used is between five and seven times current net income. But to work out the specifics of your own situation, you’ll want a financial needs analysis. It gives you a picture of the capital your survivors need when you die. It looks at assets that would be available to them, liabilities they would have to deal with, and continuing family needs for income. Your life insurance needs will depend on a number of factors, including whether you’re married, the size of your family, the nature of your financial obligations, your career stage, and your goals.
Can I Get Money Back if I Cancel My Life Insurance?
Cancelling a life insurance policy will terminate coverage and money will not be returned.
How Much Does Life Insurance Cost?
Generally, term insurance is more affordable than permanent insurance. The cost of your policy is also base on:
- Age: Insurance is less expensive when you’re younger
- Gender: Women may lower premiums
- Health: Family history, chronic diseases and lifestyle can increase price
- Occupation: Dangerous jobs could increase insurance costs
Naming a Beneficiary
Beneficiaries may be revocable or irrevocable:
- If the beneficiary is revocable, you can change the beneficiary at any time without advising the beneficiary
- If the beneficiary is irrevocable, you must have the irrevocable beneficiary’s written permission before making beneficiary changes
- If you live in Quebec and name your spouse as your beneficiary, the designation is automatically irrevocable, unless you specifically make it revocable when you first designate your spouse
What is Group Insurance?
Group insurance is insurance that covers a group of people. The employees of a particular company are grouped together to allow insurance companies to give lower rates. Life insurance, health insurance, and/or some other types of personal insurance may be offered.
What is Mortgage Insurance?
Mortgage insurance is an optional credit and loan product that may pay the balance on your mortgage to the lender upon the title holder’s passing. Dependents or a spouse staying in the family home might not be able to continue making the same mortgage payments as before. Mortgage life insurance is usually offered through your mortgage lender. Mortgage critical illness and disability insurance may make mortgage payments to your lender if you can’t work due to a severe injury or illness.
What is Term Life Insurance?
Term life insurance guarantees payment of a stated death benefit to the insured’s beneficiaries if the insured person dies during a specified term. These policies have no value other than the guaranteed death benefit and feature no savings component as is found in a whole life insurance product.
Can You Cash out Term Life Insurance?
Term products are designed to cover only a specified period of time. Term life insurance can not be cashed out because policies typically don’t build cash value.
What is Universal Life Insurance?
Universal life insurance is a type of cash-value life insurance that provides flexibility in paying premiums and a death benefit. It’s guaranteed, lifelong protection that lets you invest and build your wealth. The cash value component represents the equity that generates a rate of return.
What is Whole Life Insurance?
Whole life insurance is a kind of permanent life insurance policy designed to pay a death benefit to beneficiaries if the insured person passes away. Participating whole life insurance offers lifetime coverage, guaranteed cash value and the opportunity to earn dividends.
Evidence of Insurability
As part of the underwriting process, life and health insurance companies may require that you complete a medical questionnaire or exam, also called Evidence of Insurability, before approving you for a policy.
Basic Medical Questionnaire
Some types of insurance, such as group policies, may require only that you sign a general statement about your health or respond to a short medical questionnaire before approving you for coverage.
- Coverage will usually begin immediately
- Illness is assessed at the time of the claim
- The insurer may review your medical information and confirm whether you qualify for coverage only when you make a claim
- The insurer may cover pre-existing conditions if you have been free of the illness for a period of time as defined in the Certificate of Insurance or the terms and conditions
Detailed Medical Questionnaire
In addition to completing a detailed medical questionnaire about your past health history and lifestyle, some types of insurance, such as individual policies, may also require that you provide medical records and undergo medical testing, such as saliva or blood tests.
- Coverage will not begin until the insurer has reviewed your medical information and confirmed that you qualify for coverage
- Illness is assessed at the time of the application and the medical information provided will determine whether you qualify for coverage
- The insurer will review your medical information and decide whether to cover or permanently exclude any pre-existing conditions
- Some insurers may agree to cover pre-existing conditions at a higher premium
For most types of life insurance, the insurance company cannot increase your premiums based on a change of health after your policy is issued. Be sure to read your policy carefully and be aware of any exclusions relating to pre-existing conditions.
Conclusion
One of the most common reasons for buying life insurance is to replace the loss of income that would occur in the event of your death. When you die and your paychecks stop, your family may be left with limited resources. Proceeds from a life insurance policy make cash available to support your family almost immediately upon your death. Life insurance is also commonly used to pay any debts that you may leave behind. Life insurance can be used to pay off mortgages, car loans, and credit card debts, leaving other remaining assets intact for your family. Life insurance proceeds can also be used to pay for final expenses and estate taxes. Finally, life insurance can create an estate for your heirs.
