Death, unfortunately, cannot be avoided. We all have to make tough decisions about what we want for our future, too. 

When it comes to life insurance, most of us do not want to get stuck on the details, but there are financial needs that every family has to think about. 

If you are at that point in your life when you are constantly thinking about the future, you can take a proactive step to protect it with a plan that gives something back.

Why Insurance Right Now?

Every family needs to be taken care of. There are always bills and unexpected expenses, as well as large purchases that need to be made to move forward. Other people are better prepared for what life brings because they took action and made a plan.

Did you know that the younger you are, the lower your premiums will be? However, everyone can use an insurance plan to cover what they need. Here are some key takeaways to understand first about buying a policy:

  • Your policy is an agreement for your insurance company to pay you a specified amount in the event of a death of the insured party
  • Your premiums must be paid up to date to receive the payout
  • Policies help you plan for an unexpected loss and give your family financial protection 

There are two different types of policies: whole or term. These policies may also provide you with more cash value, investing the premiums you pay into the market, while other policies will not pay unless your death happens within a certain time frame.

You should look for a whole policy if you want a full life coverage. Term only provides you with coverage during a specific time limit. In addition, you need to check that the policy does not require you to have a medical exam if it lapses or expires. You should be able to renew your policy without having to go to a doctor, in which case your policy could have higher premiums or you may be denied.

Before getting into how much insurance you need, it’s important to think about these different plans and what matters most to your family. Have you done a full inventory of bills and future expenses?

How Does Age Change Insurance Costs?

Many people believe that you can’t get insurance when you are older because of life expectancy and health risks. While insurance companies do make money by betting on how long you will live, they also provide insurance policies to people of all ages. Young or old, you need to be prepared for what might happen.

There have been cases of age discrimination for insurance in the workplace. While young people are slated to live longer, companies still have to pay out all the time for those who suddenly pass on. Typically, premiums do increase as you age due to increased risk, which is why starting your plan when you are young is so imperative.

However, you should never buy insurance because you are scared of not qualifying later in life. It’s completely safe to wait until you have something to protect to get insurance. By your late twenties, you should start thinking about your financial future and possibly invest in a policy so that you can cash it out if you need to as well. 

Should You Get a Cash-Value Policy?  

Policies can be cashed in after you have paid in for long periods of time, leading to a large lump sum that can be used for big expenses such as a house down payment. These are called cash-value policies, and they may work better if you are young. 

You can build up your capital while gaining interest through cash-value plans. There are some dangers according to analysts for cash-value policies though.

Insurance companies use your premiums to invest in the market and they pay you back in interest, adding to the value of your policy. While it is not the best way to invest, especially if you want to see higher returns, these cash policies may help those who do not have savings or financial discipline.

What Should You Consider for Calculating Life Insurance?

So now that you know a little bit about the policies and what they cover, you can evaluate how much insurance you need. A large part of picking a policy is looking at the financials for your dependents. Then, you can accurately suggest a face value for your policy.

Start with Your Debt

All loans, mortgages, credit cards and other debts have to be paid first, as these can pass on to your loved ones. If you have a $300,000 mortgage and a $55,000 car loan, then you know that you already need at least $355,000 to cover your debts. You also have to think about interest and fees, so it’s best to take out more on top of the raw numbers.

Replacing Your Income

Where would your family be if your income went away entirely? How much do you make per week or by the month? It’s important to look at how much you make per year and then calculate costs for how many years you want to cover your family. For example, if you are making $50,000 a year, and you want your family to be secure for 10 years, then you would add another $500,000 to your policy.

Another way to think about it is by estimating how long you’ll be alive. If you get a policy young while you are making $30,000 a year, and you know that you will live at least 25 more years, then your policy may be for $750,000 or more depending on how much you want to cover.

You may also want to protect your family against inflation, and there are stipulations for how much of your policy should also be invested. It’s likely that once you add in other costs, such as appointing a trustee and stipulations for investing a portion of the policy, that you will need at least $50,000 or so more.

Helping Your Dependents

The people in your life matter to you, and it’s important that you cover them. After your debts and replacing your income, is there more that you have to pay? If you planned for your children to go to college, or you were supporting a small business for your spouse, then you also need to consider additional funds to cover those expenses as well.

Quick Summary of Considerations

  • Insurance policies do have limits and you will need to provide proof of why you need a larger policy
  • You can carry as much as you need to pay off any bills, debts, expenses, and interest
  • Your policy needs to be large enough to cover all of your dependents, such as future college tuition
  • Plans should include coverage for your funeral expenses
  • If you need to appoint a trustee, then your policy should cover the cost as well
  • You can choose between whole, term, or cash-value insurance policies depending on your financial needs and the time period that you need it in
  • Almost anyone can get an insurance policy, whether you are young or old; health conditions may make your premiums go up, however

In Conclusion: Start Planning Today

You never know what can happen, and that’s why insurance can protect you. If you calculate your insurance needs now, you can work with an agent to come up with the most affordable plan that gives you exactly the coverage you need.

See What Insurance Can Do For You

 

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If you are concerned about what will happen to your loved ones after you die, you should consider investing in life insurance. However, you shouldn’t do so without becoming educated about what life insurance is and how it works. WRS Insurance Solutions is here to provide a basic rundown of this type of coverage, including who needs it, available types, how much it costs and how to acquire it as affordably as possible.

The Basics

With a life insurance policy, the policyholder pays premiums to an insurance carrier to maintain the policy. If the beneficiary dies while the policy is still in effect, the insurer pays the death benefit – a tax-free sum – to the policyholder’s beneficiaries. The death benefit can then be used to help the beneficiaries, typically relatives, to continue to achieve their financial goals and to meet their obligations despite the absence of the primary breadwinner.

What Does It Cover?

This type of policy covers most causes of death, including from accidents, illnesses or natural causes. It generally won’t pay if the policyholder dies by suicide within the first two years of coverage, if a beneficiary murders the policyholder or if fraudulent information is determined to have been provided on the application for coverage.

Who Needs It?

Considering that one in three families couldn’t meet their day-to-day expenses for more than a month without the primary breadwinner, it’s safe to say that many people need this type of coverage. 

For married people, this coverage provides support for the surviving spouse to cover mutually shared debts. The death benefit can be used however the beneficiary sees fit, so it can be used to pay for funeral costs or to pay for children’s educational needs. 

Even single people can benefit from this type of coverage – especially if they own their own business because they can name their partner as the beneficiary to ensure that the business remains intact following their death.

How Much Coverage is Needed?

All life insurance policies pays out a specified amount upon the death of the policyholder. Premiums will vary depending on the length of the policy and on the ultimate death benefit that will be paid. 

Therefore, to determine how much coverage you need, you should calculate the expenses that will need to be covered in the event of your death. These expenses may include shared debts with a spouse; educational costs for children; keeping a business going, or even for giving money to charity after your death.

Types of Life Insurance

Before investing in this type of coverage, it helps to understand the types of policies that are available. Here’s a quick rundown of the basics:

  • Term – A term policy covers a predetermined number of years; after that point, the policyholder stops paying premiums and coverage ends. This is the most popular type of coverage mostly because it’s the most affordable option. It can be enhanced with various riders, but you get nothing out of it if you outlive the policy.
  • Whole – Also known as permanent coverage, a whole policy involves paying premiums for as long as you live. This type of policy has a cash-value component that may increase in value as you pay your premiums. Ultimately, this component may increase the death benefit that is paid to beneficiaries when you die. Sometimes, the policy may pay dividends on the accumulated cash value. You can withdraw money from the cash-value component or use it as collateral for a loan.
  • Others – Although term and whole are the most popular options, there are a few others worth mentioning. Universal coverage is a form of permanent coverage in which the cash value is tied to a specific stock index that is selected by the insurer. The value can, therefore, decrease, so premiums may rise. Variable coverage is also tied to the market, but the policyholder selects which assets to invest in, and premiums are fixed.

Which Type of Coverage is Right for Me?

For most people, term coverage is sufficient. That’s especially true if you invest money in savings accounts. Term coverage is more affordable but still provides peace of mind. However, if you make the maximum contributions to your retirement accounts, the cash-value component of a whole policy may allow you to grow more of your money and therefore worth it.

How Much Will It Cost?

The amount that you will pay for this type of coverage will depend mostly on how much you need and the risk that you pose to the insurer. For example, if you are in poor health or engage in risky pastimes like skydiving, you will pay higher premiums. 

Premiums are regulated by state governments, so insurers rely on the same actuarial tables. As a result, someone with the same state of health and other characteristics as you should pay close to or the same as you do for coverage.

What is the Contestability Period? 

To minimize fraud, this type of insurance includes a contestability period. For the first two years of coverage, the insurer reserves the right to contest any claim that is made by beneficiaries after you die. 

Should they determine that you misrepresented your health or otherwise lied, the death benefit could be reduced or canceled entirely. After two years, the policy becomes incontestable.

How to Obtain This Type of Coverage

To obtain this type of coverage, you will undergo the following steps:

  1. Complete the application – This is where you provide basic health information, information about your hobbies and how much coverage you need. You will also provide information about primary and contingent beneficiaries – the latter being who receives the death benefit in the event of the death of the primary beneficiary.
  2. Complete a phone interview – During the interview, details from your application will be confirmed and expanded upon.
  3. Undergo a paramedical exam – Unless you aren’t getting much coverage or are in excellent health, you will have to undergo a basic checkup either at home or at a local doctor’s office. Blood and urine may also be collected to test for the use of illicit substances.
  4. Receive the attending physician statement – If you suffer from any serious or chronic illnesses, an attending physician statement will be drafted outlining those conditions and your prognosis.
  5. Wait for underwriting – Next, the insurer will perform underwriting to determine the risk that they assume in insuring you. They may examine your credit history, driving record and information about you in the Medical Information Bureau, which tracks previous applications for this type of insurance. All of this will determine how much your premiums will cost.
  6. Pay your first premium – Finally, you will have to make your first premium payment before your policy officially goes into effect. 

Tips for Saving on Coverage

A few ways to spend as little as possible on this type of coverage include:

  • Get the right amount – Base the amount of your death benefit on actual calculations for what needs to be paid after you die – don’t overextend yourself just to pay for a higher death benefit.
  • Get it early – Buy this type of coverage as early in life as you can. That way, you can lock in affordable rates while you are still young and healthy.
  • Improve your health – If you smoke, quit to avoid paying the dreaded “nicotine rate.” Note that you must be tobacco-free for at least two years to see a reduction in price and for at least five before you will qualify for the best rates.
  • Shop around – Finally, get quotes from as many insurers as you can to pinpoint the best coverage and price for you. The easiest way to do this is by connecting with WRS Insurance Solutions because we offer policies from a wide array of carriers, which makes it easy for you to arrive at the best deal.

Now that you know the basics, you can start looking into actual policies to protect yourself and your loved ones. Visit our website or give us a call to get started today!