What is Life Insurance?

Written by Joe Klass
on February 18, 2022

The first life insurance company in the United States was the Presbyterian Ministers Fund. Founded in 1759 in Philadelphia, it was specially created to help Presbyterian widows and orphans. The industry has grown and now includes more policy providers and policy maker categories. With a total value of $ 7 billion in assets in 2018 alone, the industry currently provides employment to more than 340,000 people across the United States. Some of the largest health insurance companies in the U.S. at full price include: MetLife, Prudential Financial and Aflac. Life insurance is a contract between you and an insurance company. You make regular premium payments to your health insurance company. In exchange, the company pays the death benefit to your beneficiaries when you die. Depending on the type of policy you purchase, health insurance can cover natural death, accidental death and even illness or injury while you are still alive. There are two types of life insurance: long life and eternal life. Life expectancy covers a limited period while life insurance is covered until the end of your life. Generally, long-term health insurance is cheaper than permanent life. However, policies for permanent living, such as lifetime insurance, make a lot of money over time and never expire, if you pay your premiums. Lifetime policies are useless if you live longer than a contract.

TERM LIFE INSURANCE

It is usually less expensive than permanent life insurance
It can be converted to life insurance
Installation is temporary
Health problems or age can make it difficult to qualify
No amount of money

WHOLE LIFE INSURANCE

The policy can last until death
It can provide a guaranteed amount of money
The death benefit is less than the lifespan of the price
It is often more expensive than term policies

UNIVERSAL LIFE INSURANCE

Provides more flexibility in integration than other options
It can provide a monetary value
Death benefit is not guaranteed
Interest rates can affect premiums

How to Choose the Right Health Insurance Policy

With all the health insurance options available, it may seem difficult to make the right choice. Start by deciding between longevity and permanent life insurance. Consider long-term life insurance if you need life insurance for a period of time. For example, if you want the insurance to pay for your working years as much as possible “refund” if you are no longer. Term life insurance is also a good decision if your budget is limited. Since long-term life insurance offers temporary protection, and is not a life insurance policy for the amount of money, prices will be lower than permanent life insurance. As you enter different stages of life, your health insurance requirements may change. Many long-term health insurance policies are converted into permanent policy. The options will depend on your policy and your insurance policy. Life time conversion allows you to switch to permanent insurance without re-applying or health insurance health insurance. On the other hand, permanent life insurance will last a long time. If building a budget is important to you, look for permanent life insurance options. But if you buy a permanent policy to make money with the collection of money, depending on the policy, it is better to put your money in a savings or investment car, so that you do not have to pay for life insurance and expenses. within the eternal policy. And the amount of money is usually not aimed at beneficiaries. When you die, any amount of money usually goes back to the health insurance company. Your beneficiaries receive the death benefit of the policy, not the death benefit and the amount. That being said, other types of policy will offer death benefits as well as value for money, but at a higher price.

Importance of Life Insurance:

1. Give your family more control over their financial future

There are many good reasons to buy life insurance, but it is also important to remember that there are no strings attached. Your family can use the money for whatever you need, and the payment is usually tax-free. The needs of each family are different, as are their dreams. Finally, life insurance offers options – the types of options you could work to give to your loved ones if you were there. If you are not sure how much you need or how much your family can spend on it, start by calculating the cover amount and calculator for our lifetime insurance.

2. Secure your retirement

You dream about it for decades and set aside money to make it happen. Retirement is one of the biggest and long-term financial goals of families. If you die a few years before retirement, life insurance can help ensure that your partner enjoys the life you have dreamed of together. That is why about 3 out of 10 people buy health insurance to supplement their pension, according to a LIMRA study of 2021.

3. Leaving a legacy

Do you want to leave something for your children or grandchildren to help them reach their financial goals? Life insurance is one of the easiest and most affordable ways to do it. You can also leave a legacy to an organization, such as a charitable organization. Depending on how you do it, there may be some tax benefits involved. Talk to an accountant to make sure you maximize your tax benefits. (Kilroy, 2020)

4. Reduce stress for your loved ones

One of the most important things to remember about life insurance is that it is not yours, it is theirs. Think about what will happen to your family if you die tomorrow, or next month, or next year. What would your family need to do in order to remain financially secure? One in four people says they will hear the financial results within a month if a leader dies at home, according to a LIMRA 2020 study. When you buy life insurance, you choose the amount of cover, which can range from a few thousand dollars to $ 2 million. If you die while the policy is still in effect, the beneficiary receives the cash. The beneficiary is the person who chooses to receive payment, usually your partner, your older children, or another family member. You can select as many beneficiaries as you like, and you can update the beneficiary as needed if your situation changes. Life insurance can give both you and your beneficiary peace of mind that money is available to cover some of the common needs below.

5. Paying daily debts

Millions of Americans accumulate debt for the rest of their lives. Borrowing loans and student loans are some of the most common forms of credit that can be part of a sound financial plan. Other types of flexible loans, such as credit card debt, can be very risky due to high interest rates and potential damage to credit schools (where balances are not paid). In fact, the average American person has about $ 6,200 credit card debt. If a person dies before the outstanding debts are paid, the debt can seriously burden his or her estate, family and heirs financially. Although not all outstanding debts are the sole responsibility of the beneficiaries, the deceased signatories or joint owners of the account may be liable to pay the remaining balance. (It is important to note that all U.S. states have different rules governing how unpaid debts are prioritized after a person dies).

6. Save the family home

Your family home is very important. It is there that you make memories, bring the children home from the hospital for the first time, and teach them to ride a bicycle. And it is often a huge expense on a family budget. The median monthly mortgage payment is approximately $ 1,100 in the United States. That is a huge expense for your family to pay for without your financial support. Life insurance money can help cover your mortgage if you suddenly pass away, so you do not have to take your family out or reduce it. In fact, many people buy long-term health policies that are commensurate with their mortgage assets. The longest available policy is a 30-year policy, which will ultimately be covered everywhere if you have a 30-year loan. A life insurance policy can also help cover any other debts your family may have incurred after your death. That includes any joint venture loan, such as a car loan and a student loan. If you have a mortgage or other debt, do not let it prevent you from buying life insurance. It can be a great way to help prevent those costs from falling on your family if something happens to you. (Kilroy, 2020)

7. Pay for your child’s education

The percentage of people studying in college is rising. In fact, about 39% of thousands of years now have college degrees, compared to 29% of Gen Xers and about 25 percent of baby boomers. The average cost of college tuition and tuition increases, too. Today, the annual tuition fee and tuition fees are approximately $ 41,000 for private colleges, $ 27,000 for out-of-state students in public schools, and about $ 11,000 for public residents in public colleges. Keep in mind that room and board, along with other costs, may increase these figures. If college is going to be part of your child’s future, having a plan to pay for it is important. And even if your child’s plans do not involve college, he or she may want to learn a trade or skip over another program that requires support. With life insurance, you have financial resources to help protect those dreams. When calculating your income, think of how many children you have and how much you can afford to pay for each school. You may need to add more, depending on the type of school.

8. Protect your business

If a business owner or partner in a joint venture dies, their employees and business partners may be left out to dry. Fortunately, life insurance can include some financial security and be an asset to the business. First of all, the benefits of health insurance can provide a financial boost to keep a business running while things get sorted out. Creating a buy / sell agreement between business partners is another possible option. In this case, life insurance is taken out of each partner, usually to match that person’s share in the company. If an insured partner dies, the surviving partner (s) will have the money needed to buy part of the business heirs. This may improve the financial security of all involved, including their families. The business owner may use some form of life insurance to obtain a loan. Remember that only lifelong or permanent insurance policies are eligible for cash collection. These types of policies usually carry high premiums. However, because policyholders pay more than the death benefit, the insurance company may be able to raise the amount. (Some policies may guarantee a certain amount of cash growth, while others bind cash at current interest rates or invest in smaller accounts). There is no authorization process or credit check for such a loan, as the policy owner borrows from the funds he has already paid for the policy. However, some insurance policies in this category may come with “withdrawal” or interest on the loan amount. (“What is life insurance, and how does it work?,” n.d.)

9. Provide a source of income during your lifetime

As mentioned above, permanent life insurance can provide you with financial support during your lifetime and after your death. Permanent life insurance lasts a lifetime as long as you pay your premiums, and build up a steady income over time. You can borrow from it free of charge or use it as a mortgage. That money can help you reach big and small financial goals during your lifetime, which may include covering college expenses, paying for home improvement, or paying for a trip. Yours to do as you wish.

10. End-of-Life Expenditure Management

When a person dies, family members and loved ones may need to set things straight and arrange for a funeral while they are still grieving. Adding life-saving costs to life insurance can save our loved ones extra money and grief. Costs vary between funeral homes and places, but it is not uncommon in the US to pay between $ 7,000 to $ 10,000 for a funeral service, funeral, and headstone. (Fontinelle, 2019) Informing the nominated beneficiaries of the policy nomination can help the health insurance claims process to work more efficiently. They will need a certified copy of the death certificate to submit the required documents.

11. Paying Off Debts

Millions of Americans accumulate some level of debt throughout their life. Taking out a mortgage and student loans are some common forms of debt that can be part of a sound financial plan.

Other types of revolving debt, such as credit card debt, can be riskier due to high interest rates and potential harm to credit scores (when balances don’t get paid off). In fact, the average American has around $6,200 in credit card debt.

When someone dies before outstanding debts are paid off, the money owed may financially burden their estate, family and heirs.

While not every outstanding debt is the responsibility of heirs, cosigners or joint account holders of the deceased could be liable for paying the remaining balance. (It’s important to note that every US state has distinct laws that govern how unpaid debts get prioritized after a person’s death).

There are some cases where young people without dependents may also be interested in life insurance. For instance, when a parent or guardian is a cosigner on a student loan, taking out a life insurance policy on the adult child could cover the remaining educational debt in the event of the parents’ untimely deaths.

Generally, the life insurance premium paid by younger policyholders can be lower than those charged to middle-aged or older individuals.

Life insurance may provide a financial safety net for loved ones left holding the bag on paying off debts. For some, it could prevent certain scenarios, such as needing to sell the family home to balance the debt books in the wake of a death.