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Let’s face it…would you bother yourself with finding the right insurance policy if you know nothing about it? I guess not.
According to a nationwide life insurance survey by the ASA group, a staggering 90% of respondents believe that life insurance is important; however, only 60% report having one. Those with an existing insurance policy either didn’t know its benefits or needed more coverage.
I know. Life insurance isn’t a fun topic of discussion to have.
We’ve all got enough money concerns in our daily lives than to think about what would happen when we die. Once you picture how grateful your family would be that you signed up for an insurance policy, your perspective will change.
Read on to know how you can protect your loved ones…
Life insurance is an agreement between an insurance company and you, the insured.
After your death, it will pay a death benefit to your loved ones, and with this benefit, they’d be able to cover bills, school fees or even the funeral costs.
This sum of money is tax free.
With a life insurance policy, you provide financial coverage and peace of mind for your dependents.
Sign a Contract
First, you'd have to sign a contract where you'd agree to pay an amount [a premium] for the policy and the insurer would also agree to pay some sum of money [death benefit] to your loved ones if you die.
Next, you must choose the beneficiaries that will receive the death benefit. The payouts can go toward mortgage payments, school fees, or anything else.
Once you’ve set up your life insurance policy, you’d need to inform those you choose as your beneficiaries, so they can know which insurance company holds your policy.
It’s that simple.
You’re wondering how life insurance companies make their profits from this?
They invest the premiums hoping to make more money than they pay out in claims. If you also stop paying for your life insurance, the policies would lapse and the insurer will be left with the money you already paid them.
Just like most products or services you’re used to; you can also add different options to your life insurance policy. These ‘options’ are riders in insurance terms.
A rider is an additional life insurance offering that you pay for apart from your standard policy. It’s like asking for a side salad after you’ve ordered the main course from your favorite restaurant. Most insurance riders come at an extra cost, but you can use them to add more coverage or benefits to your policy.
Sometimes, a standard life insurance policy might not be able to cover or meet all your coverage needs and so, life insurance riders would work great at filling up any coverage gaps. Life insurance riders improve the coverage your policy already provides.
Be Careful Though: Most Insurance riders will cost you plenty of money. So, I advise that you first learn about them and only go for the ones that’s most reasonable for your situation. This saves you from having an insurance salesperson tell you you need to add a lot to your policy only for you to find out it’s way out of your financial means.
Some insurance riders are more common than others, but everyone’s needs vary. You might end up going through all the riders and discover that you don’t need any.
Well, that’s up to you to decide. I’ve comprehensively explained 12 common life insurance riders to help you make an educated decision.
An accelerated death benefit rider gives you financial cover even while you’re still alive.
Most life insurance companies offer it for free or at a very low cost.
With this rider, you can get a percentage of your life insurance policy’s death benefit if you’re ill and planning the end of life.
The amount paid to you while you’re alive is subtracted from the future death benefit.
This rider adds an extra benefit to your policy’s death benefit ‘IF and only if’ you die from an accident.
If you indulge in high-risk activities or have a dangerous career, then you’ll pay higher for this rider.
Sometimes, you get an additional payment for dismemberment if you lose a limb, your eyesight or so in an accident.
However, know that this rider might void if you die because of illegal activity during your service in the armed forces, while skydiving or engaging in any other dangerous hobby you enjoy.
If your child has a medical condition with a low chance of survival or you feel he or she might find it difficult to insure later in life then, I’d advise that you consider child-protection riders, so you can get reasonable rates now.
Child riders usually cost around $7 per month and if your child dies, you’ll get a death benefit that should be enough to cover the funeral costs or medical bills.
Now you ask, “When can I add a child-protection rider to my policy?”
Well, you can add a child rider to your policy from when your child is two weeks old and it would run until he or she turns 18.
The good thing is, you can cover all your children with a single child-protection rider.
With this rider, you get to buy extra coverage yearly to make up for your increasing insurance needs and inflation.
You can purchase this extra amount of coverage based on the increase in the cost-of-living index.
Many insurance companies make use of the Consumer Price Index [CPI] to check how much inflation has taken place each year.
If they have diagnosed you with a critical or chronic illness like a heart attack, cancer or stroke, a critical illness rider will ensure that you’re paid a lump sum by your insurance company.
You can always use the benefits for any of your needs while undergoing treatment.
With a critical illness rider, you need not have qualified long-term care costs for you to be eligible for an accelerated benefit.
According to the rules set by the IRS, death benefits have a fixed amount that’s paid out daily and anything over this amount is taxable income.
Just like the accelerated death rider, they would subtract any benefits paid out from the death benefit.
They usually pay death benefits out to your beneficiaries as a one time lump sum, but you can tweak this and spread the benefits in monthly installments.
With a family income benefit rider, they will give your beneficiaries a monthly stipend plus the standard death benefit if you die.
If you’re your family’s breadwinner, then this rider is perfect as it would serve as income for your family after your death.
If your health is declining and needs more insurance coverage, then you can consider this rider.
With this rider, you can buy extra coverage with no proof of insurability or a medical exam.
Most times, this rider lets you buy additional coverage at specific intervals like every 3-5 years or a certain age range.
When you get the chance to purchase extra coverage, your insurer will assess your age to set a premium and not your health status.
The long-term care rider benefits get activated once you can no longer perform at least two of the six Activities for Daily Living (ADL).
It allows you to speed up or withdraw some money from your death benefit if you need long-term care.
For this rider to take effect, most insurers will need you to have a death prognosis that’s within 12 months.
Some insurance companies refund you for the care expenses you incurred to a limit, while some give you a percentage of the death benefit monthly for you to use towards your care expenses.
Since the premiums on a standard long-term care insurance policy can be high, having a long-term care rider added is an affordable way to protect yourself just in case you need long-term care.
This rider protects you just in case you live to the end of your term-life policy term.
Here, you’ll receive the premiums you paid back.
It’s expensive since you’re getting a ‘huge extra’ in return — but here’s a tip; the younger you are when you purchase your life insurance, the lower the ROP rider’s cost.
For example, you get your life insurance when you’re 40 and you’re paying a monthly premium of about $600.
If you live for another 30 years and your policy lapses, you would have paid $18,000 in premiums and wouldn’t get anything back.
But if you got the same insurance policy with an ROP rider and paid an annual premium of let’s say $1,285.
At the end of 30 years, you’d get the full $49,536 that you paid within the last three decades.
Note: A ROP rider might triple your premiums and turn an affordable term policy into a huge expense on your end, so I advise that you approach it carefully.
With the spousal rider, you get to add life insurance coverage for your partner.
The spousal rider used to be one of the most sought-after life insurance riders, as it’s more affordable than when your partner gets a separate policy.
I said ‘used to be’ because many insurance companies would advise that your spouse purchase a separate policy as the rider offers lower coverage.
If you truly want to protect your household from the loss of your partner’s financial contribution, encourage your spouse to get a separate policy.
A term conversion rider is an ideal choice if you believe that you’d need to convert your term life policy to a permanent one.
With a term conversion rider, you can turn your term policy into a permanent or whole life insurance policy with no medical test.
This rider appeals more to young people who want more insurance coverage, but can’t afford the high cost of permanent life insurance.
Just remember this rider will come with a deadline after which you won’t be able to convert your policy.
If you’re disabled and unable to work, adding this rider to your life insurance policy will exclude you from paying the policy premium.
This waiver typically expires when you reach 60 or 65.
Since every life insurance policy has its ways of viewing disability, it’s smart for you to check and confirm the illnesses or injuries that are being covered.
Most times, the rider waives all premiums on your policy if you become disabled for at least six months without interruption.
Some insurance companies waive all future premiums if you’re 60 and you became disabled before the policy anniversary and remains so until you turn 65.
This rider helps you keep your life insurance coverage if you’re disabled and don’t have long-term disability insurance or savings to cover unemployment.
While you must have come across the different types of life insurance policies – and probably got overwhelmed – they can be categorized into three:
It covers a limited timeframe within which if you die, your beneficiaries will receive the death benefit without any cash value growth.
Once the term expires – could be in 10, 15 years or more – you’ll need to renew it and mostly at a higher price than the previous term.
However, if you die too soon, this policy might not pay out after taking out coverage, so do yourself a favor by reading the small print carefully before purchasing.
Think of it as you paying monthly rent for your apartment. It's more affordable, but it's for a set period and doesn't give you full ownership.
It’s straightforward and easy to understand.
No hidden fees, risks or exclusions to worry about.
Most affordable life insurance.
You can cancel anytime without losing value.
Your coverage ends immediately.
Renewing it might come with extra costs.
It costs more than term life insurance -- but it grows over time and gives you extra features like cash value, which grows tax-deferred at a guaranteed interest rate.
Using our apartment example, it's like owning the apartment [like a mortgage] instead of renting it.
Of course, that will be more expensive, but it's designed to last throughout your lifetime.
It doesn’t expire.
It works like a forced savings element.
Works great as an estate-planning or customized personal finance strategy.
Access your cash value if you need it.
A low-interest rate on the cash value.
It’s more complicated than term life insurance.
It’s similar to whole life insurance in the sense that it combines savings with lifelong coverage.
If you pay the premiums as required, the policy won’t expire and death benefits will be paid out to your beneficiaries.
It provides cash value like a whole life policy, but with greater flexibility over the premiums, savings, and death benefit.
It also allows you to use your policy’s cash value to pay your premiums if there’s a need to — as long as the insurance cost is covered.
It offers more flexible options for you to customize your coverage.
Ability to choose where your cash build-up goes.
Access your cash value if you need it.
Tax-deferred cash value growth.
If you borrow against your universal life policy, you’d be charged interest and get a lower death benefit.
Extremely low-interest rates.
You’ll need to monitor your cash value closely.
You must pass a medical exam to qualify.
Choices in policy length
Most affordable policy
Cash value can be linked to investments
Builds cash value
Need to renew coverage
Flexible death benefits
*This comparison is based on the assumption that you’re healthy.
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Well, it depends. We all have varying needs or situations that come up, which is why I can’t pick only one out of the two and recommend it for you.
But before you decide between these two policies, you should first know how they’re different and what makes each right for your financial situation.
With that being said, let’s look at how these two policies differ:
Choosing the life insurance policy that matches your needs might seem like a daunting task—but it’s also an important decision that you must make.
To help you narrow down your insurance options, you can use these guidelines to help you make the right choice:
Consider term life if you…
Consider whole life insurance if you…
Consider universal life insurance if you…
In a 2019 study carried out by Life Happens, it was discovered that almost half of Americans thought term life insurance was at least three times more expensive than it truly is.
The truth is you can affordably get a huge death benefit with a term life policy.
(Find out how much your insurance will cost with the calculator below:)
For example, a healthy 30-year-old man can get a $500,000, 20-year-term policy starting at $229 a year.
The amount you’ll pay yearly for your term or whole life insurance will depend on these factors:
To give you a close idea of what you should expect, take a look at the average annual life insurance costs for men and women of different age groups and policy lengths:
Policy amount (annual)
20-year term life
30-year term life
Male, age 30
Female, age 30
Male, age 40
Female, age 40
Male, age 50
Female, age 50
Annual premiums using an average of three lowest prices available in each category for healthy men and women. Source: Quotacy.
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In a 2019 report on the Economic Well-Being of U.S. Households, it was discovered that nearly 40% of American adults would find it difficult to cover a $400 emergency expense and 12% won’t even be able to pay it at all.
So, if you have loved ones who rely on you financially, then having a life insurance policy is more of a necessity than a luxury.
You’ll have peace of mind when you know that your loved ones will have financial assistance if you die.
It will ease the financial burden for funeral costs and help them adjust financially during the first couple of months or even years.
If you also have debts, estate taxes or loans to cover, you can easily do that with a life insurance policy.
Some insurance experts might tell you that the best or ideal age for you to get life insurance is 35.
However, I believe that it also depends on your situation or if you’ve got someone that financially depends on you. You need to always remember that delaying life insurance can be costly.
Besides, you’d agree that the older you get, the more medical conditions that are likely to come up and this increases your chances of having to pay a higher monthly premium.
If you’re ready to start for life insurance but don’t where to start, then you can use these tips to get the coverage you need:
Determine how much insurance you’ll need: You might hear recommendations like getting a policy that’s about 10 times your annual salary and while I have nothing against this, I believe it’s better to consider some factors before deciding on your 'magic number'. You can start by summing up your debts or existing payables, car loans, school fees, mortgage and so on. Next, determine how much income the insurance policy should replace and if your salary increases annually, don't forget to factor it in as well.
Get different quotes to compare: The perfect way for you to save up on life insurance is to get quotes from different insurance companies so you can compare. The prices can be wide apart, depending on your age, gender, health status and the policy you choose.
Get the right documentation ready: When you’re applying for life insurance, you’ll need to have a couple of documents ready. You’ll need to provide your financial information and choose the beneficiaries that will receive the death benefit -- you need to have their dates of birth plus Social Security numbers handy. There might be other medical details that your insurer would ask you for but basic information on your health status [if you’re a smoker, for example] and your family’s health history will do for now.
Like I mentioned earlier, a handful of life insurance companies determine insurance costs by using your life expectancy as the basis.
This means you should expect higher rates if there’s anything that can shorten your life expectancy like your family’s health history and medical conditions.
Even if your health is declining, that shouldn’t stop you from getting life insurance quotes as insurers vary in how they view past conditions plus there are life insurance types that you won’t need to take a medical exam before you’re eligible.
So, the takeaway from this post is… buy life insurance as early as you can, before you have dependents or when you’re healthy and young. Don’t wait.
Your age can increase the life insurance quotes you get.
Let’s not also forget that new health issues can creep in and viola… your rates go up even more.
Don’t also make the mistake of thinking the cheapest life insurance policy is the best one for you.
Saving $50 or more yearly might not be worth it in trusting your life insurance policy into the hands of a risky company.
I want you to see life insurance as a confidence-boosting factor, knowing that it will cater to your loved ones irrespective of what happens to you.
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