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Life insurance is designed to protect your loved ones after you die or are no longer able to work. With the right coverage, your family will have enough to cover outstanding debts and maintain their current way of living.
Life insurance is a protective policy that helps your family recover financially after your loss. You pay monthly premiums to an insurer, with rates based on your risk of dying according to actuarial tables. In exchange, if you die during the period your policy is active, your family receives a payout designed to replace your income.
If you’re interested in purchasing life insurance, here are the basics:
When it comes to protecting your family with a policy, you have two main types of life insurance to choose from, term life and permanent life. The only difference is how long you want to be covered for.
Term life insurance is a popular choice for most people. With term life insurance, you choose the term or period when you would need to cover your family’s expenses. For example, if you’re the sole breadwinner of your family and have a 30-year mortgage, a 30-year term life insurance policy would ensure your family could pay to stay in the home until it’s paid off.
Permanent life insurance offers lifelong coverage. While you’ll pay much higher premiums, you’re covered for life instead of choosing a coverage term. Your premiums are also invested, which means your policy has a cash value you can dip into once you’ve accumulated enough.
Costs vary greatly based on the level of risk a provider or insurer considers you to be. Ultimately, this risk is reflected in the premium you pay, which considers such factors as:
Coverage limits vary across insurers and providers, but averages range from $25,000 to up to $1 million or more.
The majority of providers offer coverage in multiples of $50,000 up to $1 million. When you’re young, the difference between adding an extra $50,000 or $100,000 in coverage to your policy can be low.
As a general rule of thumb, many experts say you should take out insurance coverage that’s equal to 10 times your annual income. You can use a life insurance calculator to help you figure what coverage amount you need.
To start determining how much coverage you need:
Yes. Most insurers allow you to take out a joint policy to cover your spouse, and many offer coverage options that allow you to extend your policy’s coverage to cover your entire family.
A handful of providers offer standalone life insurance for your children that allows for conversion to a term life policy when they’re grown. Talk to your insurer about your options.
You have three main ways to buy life insurance: directly from an insurer online, through an insurance agent or through an insurance broker.The basic steps to purchasing a life insurance policy include:
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Most insurers will allow you to pay your premium by a personal check, cashier’s check or bank transfer. None accept cash.
Some carriers will let you pay your initial premium using a credit card, while Transamerica is the only insurer we know of that accepts credit cards for recurring payments.
Yes. If you decide you no longer need the protection it offers, you can let your insurer that you’d like cancel your life insurance.
Note that your insurer is not obligated to refund any of the premiums you paid. And if you change your mind after canceling your policy, you’ll likely face higher premiums and other restrictions if you’re older than when you initially signed up or have since had health issues.
If you’re recently signed up for the policy you’d like to cancel, you might be within a “cooling off” period. Many providers allow you up to 30 days to change your mind without fees or penalty, even refunding any premiums you’ve paid in the meantime.
Yes, but generally only in two specific circumstances:
Part of the process of signing up for a life insurance policy is designating the people who will receive your policy’s benefits after you die. Most policyholders designate their spouse or children, but you can assign your benefits to anybody who depends on you financially — even friends or business partners.
If you don’t assign at least one beneficiary or you outlive your beneficiaries and fail to update your policy, your funds are distributed to your estate as outlined in your will.
Updating your policy is simple: Just call your insurance company and ask how you can remove or add a beneficiary. If you have an estate planner, you’ll want to let them know of the change as well.
Most life insurance policies pay out your benefits to designated beneficiaries after you die. They might have the option of receiving a one-time lump sum or installments over time — also called annuities.
To start the death claims process, a beneficiary or representative of your estate contacts your insurer, which then guides them through the paperwork and documents required to settle your claim
As a beneficiary, it’s your responsibility to file a claim when the policyholder dies. These are the steps:
If your insurer declines the claim, your beneficiaries have the option to file an immediate objection, unless the rejection is due to fraudulent or falsified information in the policy or claim.
Successful critical illness or disability claims are typically paid out in a lump sum that you spend however you’d like. If your critical illness or disability benefit is a rider or otherwise bundled with your life insurance policy, your coverage amount is reduced by the benefit you’re paid.
The right life insurance policy can help keep you and your family financially secure even if there’s a sudden loss of income. To find the right policy for you, compare life insurers and get quotes from your top providers.
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