Before purchasing life insurance there are questions many people have. These usually cover the basics of how life insurance works. In this article, we will go over 10 life insurance FAQs.
1. How Much Life Insurance Do I Need?
For your life insurance policy to be successful it is important that you33 are properly covered. How large of a policy you need will vary from person to person. But there are a few way to calculate how much you need. First, some recommend purchasing a policy that is 10 times your income. Second, is the DIME method. With this method, you combine the following to determine your death benefit:
- Debts: Add up the total amount of your debts, not including your mortgage.
- Income: This is your salary multiplied by the number of years you think your family will need income replacement.
- Mortgage: The total amount your family would need to pay off the mortgage.
- Education: Anticipated costs to send each child to college.
If you are uneasy about calculating this amount yourself, your insurance agent can help you.
2. Do I Need Life Insurance?
To determine if you need life insurance you should ask yourself a few questions. First, is there anyone who is dependent on your salary? Second, do you have debts others would be responsible for at your death? If the answer to either of these is yes, life insurance would benefit you and your family.
3. What is Term Life Insurance?
Term life insurance is a policy that covers you only a limited amount of time. If you pass away within that time period, your beneficiaries will receive the death benefit. Once this period expires your beneficiaries would not be entitled to receive any payout when you pass.
4. What is Permanent Life Insurance?
Permanent life insurance covers you for your whole life. It also has a cash value you can borrow against during your lifetime. The drawback is it is more expensive than term life insurance because it is guaranteed there will be a payout at your death.
5. What are Life Insurance Riders?
Life insurance riders are amendments to your life insurance policy. These allow you to further customize your life insurance policy for your needs. It is important to note that they will cause premium increases.
6. What are Some Examples of Riders?
There are many types of life insurance riders. Here are a few examples of the most used riders.
- Accidental Death Benefit: If you die as the result of an accident this rider will increase the amount of your death benefit.
- Waiver of Premium: This rider will cause the insurance company to waive premiums if you become disabled and unable to pay them.
- Accelerated Death Benefit: This rider allows you to collect a portion of your death benefit if you are diagnosed with a terminal illness that requires long term care. This is to help pay for your care. However, it will reduce the death benefits paid to your beneficiaries.
7. What Happens If I Miss a Premium Payment or Pay Late?
Most term insurance policies provide you with a grace period. This is a period of time after the due date of the payment during which you can still pay premiums without losing coverage. If you have a permanent life policy you may be able to use the cash value as a backup premium source to keep up to date. Some insurance companies may even allow you to reinstate a lapsed policy as long as you bring your premium up to date.
8. What is Involved in the Medical Exam?
A medical exam is generally required for a life insurance policy to be issued. Insurance companies require these to see if you are too risky to insure and classify your health for the purpose of premium calculation. You will not need to pay for this exam and typically a technician will come to your home or office to complete it. They will take your pulse, height, weight, and a blood sample. The insurance company will be looking to see if you have high blood pressure, glucose, or cholesterol, if you have nicotine in your system and what your BMI is.
9. Do I Need Life Insurance If I Have It Through Work?
Having life insurance through your work is a good start. But most likely, this coverage is going to be inadequate. Additionally, if you leave or lose your job, you will lose coverage. It is best practice to use employer provided insurance as a supplement to your main purchased policy.
10. What is an Underwriter?
An underwriter is an employee of the insurance company. Their job is to determine how big of a risk you are to insure. Based on your findings, they will determine your classification for premium purposes.
Purchasing a Life Insurance Policy
After learning the answers to these life insurance FAQs, you are better prepared to purchase a life insurance policy. You can also enlist the help of a licensed insurance agent to guide you through the process and help you find the best policy for your needs.
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