Life! It is a gift and it is something we need to enjoy at its fullest. However, we also must prepare for its ups and downs. Hence, the need for life cover. A life insurance policy will serve as one important component as you build a solid financial foundation for you and your family. In the event of your untimely death, your loved ones will not have to worry about their immediate needs and finances. If done right, your life insurance plan can replace the income you would have earned so that your family can have what they need.
But there are so many questions about getting life insurance: What kind of life insurance do I need? How much of it will be enough for my family? What's a rider? How do I buy a policy?
Here, we will discuss the basics of life cover so that you can make an informed decision as to what works best for your unique situation and help you get a life insurance quote online.
What can life insurance be used to pay for?
Life insurance basically aims to provide funds to replace the income of the person being insured. Life insurance is used to pay for:
- End of life expenses: One's death may incur hospital bills, as well as funeral and burial expenses
- Household expenses: Including the basics a family needs such as food, clothing, shelter and transportation expenses
- Pay a debt: Can be used to pay up a mortgage
- Fund children's education: Your children won't have to worry about giving up on college because of your death
- Fund your retirement: Depending on how a life insurance is set up, one can use the cash values accumulated in the policy to help you have money for your retirement. This is only available for some selected life insurance policies.
How does it work?
Life insurance is like an umbrella – when it rains, you take out your umbrella to keep you dry from the storm. The same goes for life insurance. If you are covered with life insurance, when you die your beneficiaries will receive the death benefits (plus any other benefits provided by the policy and its riders). The life insurance policy will cover you for the duration of the term.
How can I buy life insurance?
To help you make this decision, all you need to do is discover the answer to the following questions:
Do you need life insurance?
Life insurance is ideal if there is someone who depends on your income or who will suffer financial/emotional loss at your death. For instance, a spouse, a child or aged parents may look to you to provide for their needs and daily expenses. In other cases, creditors will suffer financial loss in the event that buyer dies. Still another example would be a business partner finding it hard to keep the business afloat when you die. If there is no one counting on you such as the examples given above, then you really don't need insurance. In a similar vein, if you have enough assets or savings which can provide for your dependent's needs, then you may not need insurance.
How much insurance will you need?
This depends on how much you contribute to your household. Find out how much money your spouse and children need to live or to maintain a reasonable lifestyle. You may also deduct the amount of money that your spouse can contribute into the household fund. You can multiply the result by the number of years they will need the money. Also, add in major expenses such as payment for a mortgage or money for college. This will give you an idea of how much your dependents will need.
What kind of life insurance product should I choose?
In a nutshell, life insurance products will fall into two major categories: term life insurance and permanent life insurance.
Term life insurance provides temporary coverage. The insurance protection is provided for a specified period of time. Within this period, the policy will continue covering you as long as you pay the premiums. After the end of the coverage period, you may have the option to continue the policy by renewing it. With term, premiums are cheap at the onset (when you're young and healthy) and may increase over time due to changing health conditions and other factors. The death benefits are only paid if the Insured dies within the coverage period.
Examples of term life insurance products include:
- Yearly Renewable term. A policy that covers you for a year, after which you can opt to renew for the next policy year.
- Level term life insurance. This provides level premiums and coverage for a specified period (say, 10 years). You can also opt to renew it after the guaranteed premium period (the time where premiums remain the same), but the policy may be up for review and your premiums may change.
- Decreasing term life insurance. Basically used for covering a decreasing responsibility, such as a mortgage.
- Increasing term life insurance. Term life insurance that increases its coverage periodically based on a specified percentage or index.
Permanent life insurance is, well, permanent. The payout is certain, whether the insured dies within the policy period or survives the coverage. That is why it is permanent – you always have your benefits with you. This is a much more expensive kind of policy, as it accumulates cash values. Meaning, aside from the life insurance cover, your beneficiaries potentially can receive additional funds from the cash value. Also, while you're living you can make use of the cash values – you can take out a loan or pay premiums.
Examples of permanent life insurance:
- Whole life insurance. This provides insurance coverage for the entire life of the Insured. It may also accumulate cash values which may be used by the Policy Owner while the Insured is living or which may be given to the beneficiaries on top of the basic death benefit.
- Universal life insurance. This provides flexibility in terms of the premium structure. The Policy Owner can choose how much and when premiums will be paid.
- Variable life insurance. This policy also accumulates cash value but it allows the policy owner to decide where he will invest the cash values.
What other benefits will I need?
There are add-ons you can tack into your basic life insurance company. These are called riders. Some examples of riders include:
- Waiver of premium rider, which waives all or some premiums if you become disabled.
- Critical illness rider, which pays a specified amount if you are diagnosed with a critical illness.
- Accelerated Death benefit rider, which pays a portion of the death benefit if you are diagnosed with a critical illness.
- Accidental death benefit rider, which doubles the death benefit if the death is caused by an accident
How do I get the best deal?
You can ask us for quotes from reputable insurance companies and we will gladly provide you with online life insurance quotes to help you compare and get the best deal. We'll also facilitate the issuance of your policy so that buying life insurance is a no-hassle experience for you! For health insurance quotes, visit www.healthinsurancequotes.co.uk.
Some tips when buying your life insurance policy:
Answer questions truthfully and completely when filling up the application form.
Find an insurance company that has a good reputation and is financially stable. You can look at ratings agencies such as Standard and Poor's or Moody's for ratings on the financial strength of companies.
When getting the policy, carefully read the policy's terms and conditions to make sure that you know what you are covered for. You have a free-look period where you can opt to cancel the policy and the insurance company will refund all premiums.
Check when the policy becomes effective. This is usually found at the summary of the policy.
Keep your life insurance policy on a file that your beneficiary knows. This way, they won't have to hunt for it when they will need to make a claim.
Regularly review your policy to make sure that it is in line with your wishes and your current situation. Major life events (i.e. a marriage, a divorce, the birth of a child) can change your requirements with regards to the policy.