Buying life insurance can be a complex process, especially if you do not understand how life insurance policies work. There are many factors that should play into your decision, so make sure you do your research. These are some facts you should consider before deciding on a life insurance policy.
How do life insurance policies work?
Life insurance policies provide you with death benefits in exchange for premium payments. Death benefits are typically a lump-sum payment that is owed to your beneficiaries once the insured party passes away. Most death benefits are income-tax-free, so you can expect your beneficiaries to receive the full sum upon your death. There are two major types of life insurance for you to choose from, term life insurance and whole life insurance.
Term life insurance offers you coverage for a set period of time, typically 20 to 30 years, while whole life insurance provides you coverage for your entire life. Whole life insurance is typically more expensive but comes with added benefits, such as a retirement savings allocation. Term life insurance policies don’t offer long-term savings options, but they often come at significantly reduced costs.
Universal Life Insurance
Universal life insurance policies are similar to whole life insurance policies, except they are usually more flexible. With a universal policy, you may be allowed to raise or lower your premium payments and adjust your coverage amount over the course of your lifetime. Like whole life insurance policies, universal life insurance policies can build cash value over time making them ideal for individuals who need a sure way to preserve their wealth over time.
How much does life insurance cost?
Life insurance policies generally require ongoing payments of set monthly premiums, which are decided based on the insured’s health and risk status. The goal of a life insurance underwriter is to speculate on how long you are likely to live and offer you a policy that matches those observations. Therefore, health conditions that may lead to an earlier death will likely result in higher premium costs.
For example, a tobacco user would have a higher risk of death or illness, making them a higher risk for the insurance company. Likewise, someone who has a risky occupation, like skydiving, could also face higher premiums. Even dangerous hobbies can increase your premiums. Still, it is important to disclose any of these occupations or activities to your insurance provider, as if you neglect to do so before passing away your policy may be invalidated and your death benefits will be at risk of not being paid out.
When to buy life insurance
Life insurance policies are usually more expensive as you grow older, therefore it often makes sense to purchase a policy sooner, rather than later. In doing so, you can secure a much lower premium than you would if you had waited until you were older. This is especially beneficial when enrolling in whole or universal type policies that cover you for your entire lifespan.
If you are in the market for a life insurance policy, the experts at Acropolis Insurance can help point you in the right direction. Contact us now to get started with a new life insurance policy.