Life Insurance – Almost everyone has heard of it, but not everyone has it. This life insurance faq will hopefully answer the most frequently asked questions about life insurance.
Life Insurance FAQs
Who Actually Needs to Purchase Life Insurance?
Every individual’s needs for life insurance will vary with their unique situation, age and other responsibilities. Don’t be fooled though, life insurance is a very important part of your finances and there are indeed more than one reason why you should consider purchasing life insurance. Some of these reasons are:
- To replace income lost from death of the wage earner
- To pay for funeral costs
- To pay for outstanding bills and taxes and allow your survivors to keep other assets
- To pay for ongoing monthly bills
What is the right kind of life insurance to purchase?
There are indeed several different kinds of life insurance, and even with the same type of insurance, policies can be drastically different from one and other. Some will cover you for the length of your life (whole life) and some only for a specific number of years (term life insurance). Some can even build up cash values or combine different types of insurance. However, when talking life insurance, it usually boils down to two different types: term life insurance and permanant insurance -or- whole life insurance.
Term life insurance or term assurance is life insurance which provides coverage at a fixed rate of payments for a limited period of time, the relevant term.
Some key features of term insurance are:
- Term life insurance does not build up cash value
- Term insurance does not cover you until death, but for a predetermined time period
- Term insurance will only pay a benefit if you die during the period in which your policy is active (usually one or more years)
- Term insurance is typically less expensive than permanent insurance
- You can renew term insurance for one or more terms, however each time you renew your premiums may increase
Permanent life insurance is a term sometimes used for life insurance, such as whole life or endowment, where the sum assured is due to be paid out at the end of the policy (assuming the policy is kept current) and the policy accrues a cash value.
So How Much Life Insurance Do I Need?
To determine how much life insurance you need, you should ask yourself the following questions:
- Am I the sole wage earner for my family?
- If I die would my survivors be able to survive financially?
- Does anyone besides my family depend on my income?
- Do I owe anyone a significant amount of money or have a mortgage?
Some insurance companies will suggest that you purchase five to ten times your current income.
Tips on Buying Life Insurance
- Ensure you have selected a reputable insurance company
- Determine how much insurance you need and what it would be used for upon your death.
- Be informed on the types of policies available.