What is Life Insurance?
Life insurance is a somewhat broad term that can be used to describe a wide variety of financial assets. Typically, a life insurance policy will entitle the beneficiaries of the policyholder (who must pay monthly premiums) to a monetary payout in the event of the insured person’s death. There are many different types of life insurance policies available and many modifications that can be made to specific policies.
Do I Need Life Insurance?
While there are several controllable components to a family’s financial future, there is no doubt that the future will always have its unknowns, and when you are facing something unpredictable, you will inevitably be facing an increased degree of risk. The typical financial plan was likely created with the assumption that nothing unforeseen will happen.
But what if a loved one and income provider were to pass away unexpectedly? Would their financial dependents be able to live comfortably with that loss of income.? Life insurance is an affordable financial asset that can help protect families from the unexpected. In this article, we will discuss the most important things about life insurance, including key terms, types of life insurance policies, and the pros and cons of buying a policy.
Types of Policies
Life insurance can potentially provide families with several benefits, including financial protection in the event of the insured’s death, as well as financial diversification. There are 3 different types of life insurance, available with various benefits.
Term Life Insurance is often the most affordable type of life insurance coverage available and will provide a set amount of coverage for a pre-determined amount of time. Whole life insurance provides lifetime coverage. The policy usually remains in force as long as you make the required premium payments.
Term Life Insurance
Term life insurance is a policy that will only pay out when the insured dies within a specific time frame. If the insured lives longer than the specified time period, they receive no benefits from the policy; all premiums paid into this type of policy are used for commission and administrative expenses.
The benefit amount in a term life insurance policy is also generally lower than the death benefit in the other types of policies, making this type of policy useful when income needs to be replaced but money is limited.
Whole Life Insurance
Whole life insurance is a policy that provides lifetime protection for the insured and their beneficiaries. Payments on this type of policy are made throughout the insured's life; when they pass away, their beneficiaries receive the death benefit after all premiums have been paid out by the insurer.
Unlike term policies, whole life policies accumulate a cash value and will earn dividends to the benefit of the insured. These types of policies are generally more expensive than term life insurance since they offer lifelong benefits.
Universal Life Insurance
Universal life insurance is a type of policy that combines term and whole life options, allowing for greater flexibility than either one can provide alone. The premium payments made by the insured go towards any of three needs: protection, savings, and/or dividends.
Protection is the amount that will pay out if the insured dies; savings are put into a cash account attached to the policy which earns dividends as well as gives access to funds, and dividend "imitation" provides coverage for premiums even if they cannot be paid due to loss of income.
Universal life insurance policies can be a useful asset to both the insured and their beneficiaries for several reasons: premiums are flexible, they allow the beneficiaries to access funds should they need them before the insured passes away, and as long as enough money is put into savings through premium payments, dividends will provide protection from inflation. In addition, universal life policies tend to be less expensive than other types of life insurance due to the flexibility they provide, meaning that more money is available for premiums.
Benefits of Term Life Insurance
Term insurance is a specific type of life insurance that lasts for a limited period of time -- just like a temporary job. The term can last for 10 years, 20 years or 30 years depending on the type of policy you choose. Here are the benefits of a term life policy
- Offset lost income to help a family continue living comfortably.
- Lower premiums compared to permanent life insurance.
- Increased peace of mind.
Life insurance policies can also be modified to include additional benefits, such as a waiver of premium. This helps make it easier to find a life insurance plan that can fit your current financial and personal needs.
Reasons to Buy Life Insurance
If it’s your first-time shopping for life insurance, you might feel overwhelmed with so many companies around. Comparing multiple providers will undoubtedly be beneficial. When sorting through various life insurance options, be sure to keep the following things in mind:
- The reason you need coverage.
- Your current (and possible future) financial dependents.
- Whether you can access life insurance through your employer, the military, or another source.
- Health, personal risks, and other factors.
- What premium you can afford.
- What do you want to happen at the end of the term policy?
- How will you cover costs from lost income if you do not have coverage?
Conclusion
When you buy life insurance, it's important to understand what the life insurance policy covers and the limitations it may have. Make sure you know how much life insurance you need and choose a term life insurance policy if you want lower monthly premiums.
Haven Term Disclosure:
Haven Term is a Term Life Insurance Policy (ICC21 HAVEN TERM in certain states, including NC; HAVEN TERM CA21 in California) issued by C.M. Life Insurance Company (C.M. Life), Enfield, CT 06082. In New York (DTC-NY) and in other states it is issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001.
Haven Simple Disclosure:
Haven Simple is a Simplified Issue Term Life Insurance Policy (ICC20 HAVEN SIMPLE in certain states, including NC) issued by C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.
Ladder Disclosure:
Ladder Insurance Services, LLC (CA license # 0K22568; AR license # 3000140372) offers term life insurance policies: (i) in New York, on behalf of Allianz Life Insurance Company of New York, New York, NY (policy form # MN-26); and (ii) in all other states and the District of Columbia on behalf of Allianz Life Insurance Company of North America, Minneapolis, MN (policy form # ICC20P-AZ100 and # P-AZ100). Only Allianz Life Insurance Company of New York is authorized to issue life insurance in the state of New York. Insurance policy prices, coverages, features, terms, benefits, exclusions, limitations and available discounts vary between these insurers and are subject to qualifications. Each insurer is solely responsible for any claims and has financial responsibility for its own products. Allianz Life Insurance Company of New York and Allianz Life Insurance Company of North America have been rated A+ (Superior) based on an analysis of financial position and operating performance - affirmed October 2021, by A.M. Best Company, an independent analyst of the insurance industry. For the latest rating, access www.ambest.com
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