Life insurance is a financial tool and an asset that can protect your family and increase your stability, but many people are confused about the application process and the different products available. In fact, when research association LIMRA released a ten-question life insurance IQ quiz in 2012, 70% of respondents answered less than five questions correctly [1. LIMRA: Life Insurance IQ Quiz, January 2012] , suggesting most people have only a basic understanding of life insurance. So it’s not surprising that many people turn to a qualified life insurance professional to simplify the process. They can take the time to carefully assess your financial situation and long-range objectives, and then work with you to find the right products for your specific needs. Here are some of the most common questions insurance agents receive.
1. Why do I need life insurance?
If someone in your life will suffer financially when you pass away, you probably need life insurance. Adequate life insurance enables your family to grieve without having to worry about how they will cover funeral expenses or continue to meet monthly child care, mortgage or other payments. Life insurance can help ensure your loved ones are able to sustain their current lifestyle and stay in their home and it can also cover the future cost of postsecondary education for your children. There are other benefits to having life insurance: if the beneficiary is a named person and not your estate, the death benefit is free from probate costs. Also, in many regions, the cash values of a life insurance policy are protected from creditor claims. Simply put, life insurance is the backbone of your financial strategy and everything else is built around it.
2. How much life insurance do I need?
The amount of life insurance you need depends on your personal situation but a good rule of thumb is between five to ten times your annual income. You need enough to cover your current debts, maintain your family’s lifestyle and prepare for future expenses. An online needs calculator can take basic information about your current and projected expenses and assets and provide an estimate of how much life insurance you may need. A qualified insurance professional can offer much more insight and integration with your overall financial plan.
3. What are the main types of life insurance?
The right product for you depends on your age, your debts, the age of your dependents and your long-term financial goals. Most life insurance products fall into two main categories – term life and permanent life.
- With term life insurance, you pay a fixed premium for a policy that covers you for a specific period of time, usually ten to 15 years, and pays out a set amount if you die within this time period. This product can cover a major, long-term debt like a mortgage or provide an income to help take care of your children till they leave home.
- Permanent life insurance has no fixed term and is designed to cover you for the rest of your life. Some permanent products have flexible premiums, investment components, cash surrender values or the possibility to borrow against the cash value of the policy.
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4. How is life insurance sold?
You can purchase life insurance from an insurance agent or financial advisor or in some cases, through your workplace. You will need to complete an application which asks for basic information, such as your name and address and often asks for personal information such as height, weight, health, lifestyle and financial information. Depending on the product you choose, you may also be required to have an in-person medical exam in which a licensed healthcare professional will take samples and ask further questions about lifestyle and medical history. The insurer may also order your medical records for review. Next, the insurance provider will usually review your application to determine your risk and your premiums and if your application is approved, they will issue you a policy.
5. What should I consider when selecting a life insurer?
There are many life insurance providers to choose from, most of which offer similar products. Fortunately, there are simple ways for consumers to research companies online and select a few to explore further. You should look for an established reputable insurance carrier with a long history of stability. Independent ratings agencies such as A.M. Best and Standard & Poor’s score providers on their financial soundness and claims-paying ability. For those looking for an alternative to traditional life insurance companies, consider fraternal benefit societies – not for-profit, life insurance organizations whose members share a common bond such as supporting families, volunteering or faith. For information on Foresters common bond, click here.