Wednesday, 22 July 2020

How To Get Life Insurance _ Term vs. Permanent


I want to talk about life insurance, and really easy to understand terms, so at the end of this article, you will know, whether you need it, how to get it, what are the different types of life insurance, so you don't make the stupid mistake that I did. 



What Is Life Insurance?

You're probably familiar with other types of insurance like home insurance, or auto insurance, well, it's the same thing. Life insurance is a means to protect your loved ones from calamity, it means that if you die, which I mean, we all die at some point in our life. that they will get a payout from your life insurance policy that they can then use and also the payout is completely tax-free, very important to know, but they will get this payout after you die so they can pay for important things like your mortgage, your bills, maybe your funeral costs, anything that normally they would have depended on you and your income to help provide. I think there's a lot of misconceptions probably from movies and stuff about life insurance policies, and it's basically a way that you're just waiting for someone to die and then you get rich. That is not the point of life insurance. The point of life insurance is to protect your loved ones, so if you die. they won't have to sell the house because they can no longer afford their mortgage payments, or they'll have to move in with some relatives because they can't afford their lifestyle without you. So it is the main way to protect your loved ones if you do pass away.



Who Needs Life Insurance?

Not everyone actually, so if you were single and do not have any dependents. If no one depends on you for any kind of financial help, you don't need life insurance. You're good. Definitely look into getting power of attorney and maybe even a will. Cuz you probably do have some assets, but you don't need life insurance. Now, if you do have dependents and again that's children, a partner, relatives, parents, grandparents, anyone that if you passed away, they would be in some financial hot water because they can't afford their lifestyle without your income, then you definitely need life insurance. Even if you do have dependents, that actually doesn't mean that you do 100% need life insurance. Maybe you're in the category of you already have enough savings or investments or assets that if you did die, they would be able to cash those in and continue their lifestyle or pay off the mortgage or whatever. So it really depends on if you were to pass away today, would they be in financial hot water or do you have enough assets that they would actually be okay on their own. Those are kind of the different ways you can determine whether you need life insurance or not.


How Does Life Insurance Work?

You have a policy, you pay monthly premiums, and if you do die, then your beneficiaries that you've named in your policy get a tax-free payout of whatever is in their policy. They can use that payout for whatever they want, but most likely, they will use it to maintain their lifestyle, pay off debt, put kids through college, whatever the case. 


Different Types Of Life Insurance?

There are two main types

1. Term Life Insurance

The term is I'd say probably the most popular in my opinion, it is probably the best type of insurance. That is what I personally have, so that's my personal opinion. Term life insurance is very simple, it's also very affordable too, so it's great for young couples or young families, you choose a specific life insurance term, so that could be 10 or 20 or 30 years. You pay that premium monthly for ten or twenty or thirty years for the length of the policy, and if you die within that term, then your beneficiaries get your payout. Obviously, once that term ends, your policy expires, you don't get any money back, you just pay into it, and if you want more life insurance then you have to get another term or you can get some permanent life insurance after that. But the goal is not to always be covered by life insurance, it's to have it for that period of life where you don't have enough assets or investments or money in the bank to provide for your loved ones if you were to die. The goal is if you have a 20-year term after that term expires, you'll have enough assets that they can sell off if you die and they will be totally financially prepared and okay.


2. Permanent Life Insurance

Permanent life insurance is obviously permanent. There is no term, it never expires like term life insurance does, however, it is very expensive. I'm talking like ten to twenty times more expensive than term life insurance. But the thing is, you get more for what you're paying for, it is more expensive, however, your beneficiaries will always get a payout if you die because your policy doesn't expire for as long as you continue to pay your premiums. 


What Factors Determine Your Premium Rate?

There are lots of different factors that come into play to determine your specific grade because everyone's not going to get the same rate, they're all dependent on a lot of different factors.


1. How Much Coverage Do You Want?

Do you want a million-dollar payout or a $500,000 payout? Those will definitely give you different rates, obviously, the more coverage you want to get, the more expensive your policy will be.


2. Do You Want Term Or Permanent?

What kind of insurance do you want? Do you want a term? do you want permanent? Deciding on which one you want will obviously determine how much you're gonna be paying on the monthly.


3. What's Your Current Age?

If you're younger, you will get a cheaper rate than if you were older, because there's a less likelihood of you dying when you're young, and a higher likelihood of you dying if you're older.


4. Are You A Smoker?

For every kind of insurance I feel like, like health insurance, life insurance, so many other types of insurance, this is a really big factor. If you're a smoker, you're going to be paying more for your policy. If you're not, you can save some money.


5. Are You Healthy?

The healthier you are, the more money you will save. If you know that you're not super healthy and you really need to focus on your diet or work out more, whatever the case, well, it's definitely going to cost you more when it comes to paying for life insurance.


6. Are You A Good Driver?

Your driving record actually determines how much you will pay. If you're a safe driver then obviously that will be like, hey, you're probably not gonna die in a car crash. If you're a driver that has had lots of accidents, or gets lots of tickets, it's going to make your policy more expensive because the insurance company will determine, well, there's a higher likelihood that you may get into a car crash and die and we will have to pay out your life insurance policies so we're gonna charge you more for that.


7. Are You Into Dangerous Hobbies?

What are your hobbies? Not like reading or going for a run, do you like extreme sports? If you're into bungee jumping or a hang gliding, well, that is going to make your insurance policy so much more expensive, because, hey, those are dangerous, those are very risky things to do, and you may die. So if you were really into that, you do you, but it will make your insurance policy more expensive.





Conclusion

Those are the most important things when it comes to life insurance, of course, do your own due diligence after. Hopefully, this is inspired you to look more into life insurance if you currently don't have it, also make sure to get a will. Those two come together, get a will, get life insurance, so you can protect yourself and your loved ones, and, you know, just be a smart person. If you want to have a fully functioning financial plan, it's not just about having a budget and tracking your spending and investing, it really so important to have life insurance.

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