Life insurance is one of the few products that we don’t buy for ourselves but for the continued well-being of our loved ones if something was to happen to us. Everyone wants to know how does life insurance work but nobody seems to have the answer. I even searched online to see what’s out there and let me tell you it’s quite disappointing. I hope I can get this right myself but speaking to clients daily there are three questions they are really asking when they ask “how does life insurance work?” What's a life insurance policy.
Life insurance companies offer many products but its comes down to a basic concept of two types of products: term and permanent. Term life insurance is the most affordable type of life insurance because it provides temporary protection for temporary financial responsibilities.
There is, however, a less expensive Guaranteed Universal Life product that is a permanent life insurance focused more on pure protection rather than cash value.
The first step is to shop around, but in order to do that, you need to know what your shopping for. So you do a thorough needs analysis to determine how much life insurance you need in place to cover your responsibilities in case of death and for how long.
Your beneficiaries have to claim the money. The life insurance company doesn’t go out there to find the beneficiaries. That is why it is best the beneficiaries file a claim with the company immediately.
The insurance company does have a right to contest a claim if the insured died in the first two years from the purchase date of the policy if the company believes there was a fraud.
What are the types of life insurance?
Life insurance companies offer many products but its comes down to a basic concept of two types of products: term and permanent. Term life insurance is the most affordable type of life insurance because it provides temporary protection for temporary financial responsibilities. Kind of like car insurance, we hope we don’t use it, but it’s there if we need it. So if you get a 20-year term life policy, it does just that, covers you for 20 years. At the end of the term, you can either convert it to a permanent policy or renew it.
Permanent life plans which are typically either Whole Life or Universal Life. They offer lifetime coverage with some cash value accumulation but cost a lot more than a term plan.
10 year term life insurance
There is, however, a less expensive Guaranteed Universal Life product that is a permanent life insurance focused more on pure protection rather than cash value. Any cash value that it does accumulate is used to keep the premiums level throughout. This product can be a better option if you are not interested in life insurance as an investment but more focused on leaving a legacy for your family and taking care of all of your final expenses such as funeral costs, hospital bills and any remaining financial responsibilities upon your death.
How Do I Get Life Insurance?
If you’re unfamiliar to life insurance I strongly recommend working with an agent. Here are the steps you can look forward to taking when looking to acquire life insurance. Let’s go over the life insurance process here. The first step is to shop around, but in order to do that, you need to know what your shopping for. So you do a thorough needs analysis to determine how much life insurance you need in place to cover your responsibilities in case of death and for how long. Some financial responsibilities are temporary and some are permanent. Once you know what you need you can compare quotes with top A-Rated (financially strong) companies and pick the company with the best rate and that fits your situation. This can be done online with an independent life insurance agency. I always recommend doing this with a knowledgeable agent on the other end of the phone.
Next step is to apply and go through the underwriting process which usually includes a thorough background check, review of medical records, and a medical exam. The medical exam happens at your convenience at a location of your choice. Keep in mind there is also a no medical exam option. Once everything is complete the company will take between 2-6 weeks to come back with an approval. The carrier will then mail out the policy and your coverage will now be in force. If you opt for no medical exam life insurance the underwriting process can be as short as 48 hours.
Now once you are approved you pay your coverage in order to keep it in force. You can either pay annually, quarterly or monthly. Paying annually usually comes with about a 3% to 5% discount so I recommend that if it’s manageable. If your questions have been answered feel free to compare life insurance rates with all the companies on our quotes page and request an application online. If not, read on!
What Happens When I Die?
If an insured person passes away, their beneficiaries, usually their family or friends, would get paid by the insurance company via a check for the full amount of coverage irrelevant of whether they got the policy a month ago or 10 years ago as long as it is active. However, few thing must happen for that to take place.
Your beneficiaries have to claim the money. The life insurance company doesn’t go out there to find the beneficiaries. That is why it is best the beneficiaries file a claim with the company immediately. The claim paperwork is a simple form which needs to be sent along with a copy of the death certificate. The quicker this is submitted the faster the company can issue a check. It is important to make it clear to your loved ones with who you have a policy with and how much life insurance you have. Your agent should help you with this.
The insurance company does have a right to contest a claim if the insured died in the first two years from the purchase date of the policy if the company believes there was a fraud. Most companies will also deny a claim if death is ruled a suicide during the first two year period (suicide clause). If it is a death claim which is not outside the norm then the company can issue a lump sum check in a matter of few days to the beneficiaries.
When it comes to beneficiaries there are primary and contingent beneficiaries. Contingent beneficiaries are people you list on your policy as a “backup” just in case something may happen to the primary beneficiaries during the length of the policy. Also, remember the life insurance proceeds are not taxable unless of course, you have a large estate in which case you will have to pay the fees associated with that. Otherwise, your beneficiary will collect the money from the company free and clear of any taxes or costs.
Who should buy life insurance?
There are many reasons to buy life insurance but if you don’t need it should you still buy it? The answer is yes because if you are a young adult in good health you will never be this young and in good health as you are today. You are probably not planning for your future yet but if you plan on getting married and having children your rates will rise after that and later on your can add another policy because your needs will change as your life changes. If you already have kids, dependents, or maybe you care for a special need adult, you should buy a life insurance policy. If you are already married and you support your spouse, you should have it. If you are the type of person who is concerned about being dumped into a terrible nursing home because you can’t afford a good one you can look into buying Long-Term Care insurance or buying a traditional policy with a long-term care rider. If you need an SBA loan to start your business or buy a house then you will need a life insurance policy as collateral in case you pass away before you pay back your loan.
But how much life insurance do I need?
If we had all your information like your specific needs, health, and lifestyle then we could put together a nice number for you but because we don’t we will leave these questions for you to figure it out and if you ever need guidance or aren’t sure of the amount you can give us a call and we will walk you through the whole process. Here are some questions you should ask yourself in order to assess the coverage you and your family need.
The first thing you need to do is be realistic and ask yourself, how much money will your family need in order to live comfortably after you are gone?
If your family doesn’t have any money coming in then how long could they continue to live in the style they are used to?
Do you have any ongoing expenses such as college loans, car payments, or a mortgage?
How much do you save each month?
What is individual life insurance
Basically, you could find how much coverage you need by simply calculating your long-term financial obligations and then by subtracting your assets. To find out your final answer you will need to multiply your income by 10 and don’t forget to add on $100,000 per child for any college expenses they will need. Also, add a couple of thousands for your funeral costs and don’t forget to deduct your savings (if you save monthly) from the total amount in the end.
Work with us!
I hope I did a better job at answering this popular question compared to what’s out there. However, don’t wait another day and compare your quotes with our quick and easy quote engine. Or you can give us a call today and let us do all the shopping and comparing of quotes for you! id I mention our services are FREE? Because they are! Don’t waste any more of your precious time searching around because most websites out there are basically advertising for big box life insurance companies and you will get sucked right in. You can just run quotes on our site or call us directly to speak to one of our reliable agents. We will find you the best life insurance company who offer the premiums you want with the coverage you need. Here at InsureChance, we are able to give unsolicited advice and recommend the company that best reflect your specific needs, health, and lifestyle. Besides, life insurance is already confusing as it is, leave it to the pros. We are on a mission to make life insurance simple. If you have more questions or suggestions feel free to type away in the comment section below. If you would rather get the audio version then give us a call at (888)492-1967.