Life insurance is among life’s many responsibilities, yet only 41 percent of Americans have coverage, many of whom are relying solely on group insurance from an employer — which is extremely risky if job loss should become an issue. Consequences could include being vulnerable to debt traps, losing your home, creating financial ruin for your family after you pass (to include funeral costs), and losing out on key tax benefits.
It’s important to understand that if anyone in your family relies on you financially, you need life insurance; it’s a risk management tool, not an investment. While there is more than one type of policy to consider (and with a cost), here’s what you need to know about finding the best plan for you and your family based on your current situation.
There are roughly 10 different types of life insurance policies that are available, but you really should be aware of the two broad varieties: term and permanent.
Term is the least complicated and least expensive insurance available. The policy premium is determined by how many more years the insured will be alive — usually this is anywhere from 10 to 30 years. Keep in mind that you may have to maintain the policy if you’re still alive, but that in itself is a positive outcome despite the continued financial obligation.
Permanent life insurance, on the other hand, follows the same protocol as term but with the additional benefit of acquiring savings. For example, whole life insurance has an investment arm that works much like having CDs or bonds (but backed by the insurance company, not the bank), while variable life is more like having a mutual fund.
How To Shop For A Policy
There are a few different ways you can shop for a policy, to include using an agent, finding an online provider, and buying directly from a company. Just make sure you do your homework before signing on the dotted line. When obtaining quotes, provide the most accurate and updated information, particularly where your health is concerned. Keep in mind that it’s not uncommon to have to undergo a medical exam before receiving a final quote. Obviously, the younger and healthier you are, the lower your premium will be. The next step is to make sure the policy suits your needs and that you can actually afford the premium. Do shop around and compare rates before rethinking your strategy and review your policy every few years in case it needs to be tweaked.
When To Sell Your Policy
While you want to think long and hard before doing so, you can sell your life insurance policy to help supplement retirement income or pay for emergency medical expenses later in life. You’ll receive cash immediately and will no longer have to pay any premiums. In order to be eligible to sell your policy, you will need to consider your age and current health status (most people who sell are in the 65-plus bracket), what type of policy you have (universal, whole, and convertible term policies are most favorable), and policy size — it should have at least $100,000 of face value.
A Word on Funeral Insurance
The average cost for a funeral in the U.S. runs more than $9,000, so if you’re on a fixed budget, consider purchasing final expense policy as a more affordable alternative. Not only will it take care of expenses for funeral costs, but it has lower premiums and is easy to qualify for. All you need to do is answer a series of medical questions in lieu of an exam. If you’re uncertain whether this is the right policy for you, keep in mind that traditional life insurance policies are not as necessary once you become an empty-nester. You simply need a way to cover any expenses that are left behind after passing. Find out more about final expense insurance here.
If you don’t own life insurance or have enough to cover your family in the event of your death, it’s time to start looking around for a policy. A general rule of thumb is to have 10 times the amount of your annual salary, but everyone’s circumstance is different. Do your homework and find the right policy that fits your needs. You’ll sleep better knowing your family will be taken care of when you’re gone.
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