Most people want life insurance but do not have it, why is that? This is partially because of the tendency of people to overestimate the cost of life insurance policies. The perceptions about affordability can deter people from buying the life insurance that they need.
Many people question, “What is the difference between life insurance and final expense?” Well, these insurance policies were originally designed to help cover burial costs and care for widows and orphans, life insurance is a flexible and powerful financial product. According to Insurance Organization LIMRA, roughly half of Americans have some sort of life insurance.
Here is a breakdown of what you need to know about getting life insurance policies and how they work.
What is Life Insurance?
When you go get life insurance, the contract that you sign and keep between you and the company is called life insurance. Therefore, the payments that you made, the premium payments, in exchange the insurance company will give a sum to your loved ones, known as beneficiaries, after your death.
Whatever the purpose of the spending is for the beneficiaries, that’s up to them. Moreover, this can include the everyday bills, putting a child through college, and paying back loans. When you have the safety net of life insurance, your family can stay in their home and pay for the things they need too.
There are two types of life insurance policies: life insurance and final expense. Let’s discuss these further, shall we?
What Does Life Insurance Cover?
It covers all causes of death. All of them. However, it does come with some exceptions: suicides for example, within the first two years of owning the policy, if the person commits suicide, life insurance would not cover that. Apart from this, life insurance covers basically everything from accidents, illness, and homicides.
If there was a misrepresentation on the life insurance application, regardless of the cause of death, the life insurance company could deny a claim if it believes this took place. Similarly, if someone lies about their health or other information on the application that they filled out, the life insurance has the choice to deny the claim by the beneficiaries.
What Does Life Insurance Not Cover?
- Criminal activities
- High-risk hobbies
- Misrepresentation
How Does Life Insurance Policy Work?
The person that is insured, has a life insurance policy that will cover their life. Moreover, the policyholder, who can be a different person from the insured, pays a premium to an insurance company. In return, the insurer will pay a sum of money to the beneficiaries listed on the policy.
How Term Life Insurance Works
- It covers you for a certain period of time that was chosen at the time of purchase.
- For example, 10, 20, or 30 years.
- Once you die, the policy will pay your beneficiaries the amount stated in the policy.
How Permanent Life Insurance Works
- This policy typically covers you until death, assuming you are paying your premiums.
- It is the most well-known insurance policy.
- Permanent life insurance policies build cash value as they age.
- It grows at a fixed rate.
- You can use the cash value while you are still alive, and you can borrow from it, and make withdrawals.
How Whole Life Insurance Works
- Whole life policies come with guaranteed payouts; it comes at a cost though which is cash.
- Whole life premiums are a lot higher than term life insurance premiums.
How Much Does Life Insurance Cost?
- Age: So, the younger you are when you are buying the policy, the less you will have to pay. Moreover, that is because the chances of your death will also be less.
- Sex: Females have a life expectancy that is nearly five years longer than males. Hence, this means that men generally pay more for life insurance than women do.
- Heath: The life insurance rates can be heavily impacted due to your health. Similarly, the insurer will evaluate your past and current medical conditions.
- Lifestyle: Your driving history (DUI), criminal record, scary hobbies.
Exploring How Life Insurance Companies Assess Medical Histories
Understanding how do life insurance companies check medical background is essential when considering coverage. Insurers typically conduct a thorough evaluation of an applicant’s health to determine risks. This involves requesting medical records, reviewing existing conditions, and sometimes requiring a medical examination. While certain health issues might impact premiums, not all conditions lead to coverage denial. Transparency in disclosing medical history is crucial for accurate underwriting, ensuring the right policy for your needs.
How to Choose a Beneficiary?
A beneficiary is a person who can claim the death benefit once you die. Similarly, you can name multiple beneficiaries and decide what percentage they will receive once you die. You should also add contingent beneficiaries in case of situations where your primary beneficiaries die.
