Everything You Need to Know About Life Insurance

Life insurance can be a daunting task to engage in, often times consumers have no idea where to start. Some of the most common questions may look like this: How much life insurance should you purchase? How can life insurance funds be used? What is the difference between term and permanent life insurance? Or is there a medical exam to qualify for life insurance? You have questions, we have answers.

How Much Life Insurance Should I Purchase?

If you have a family, many experts suggest that you need an amount equal to 5 to 10 times your annual salary. However, many people own higher coverages to provide more income for their family. If you are in between the feeling of wanting/needing it and could go without it, consider the following before making any purchases:

• Those who might not need life insurance are financially well off, to the point where the others in the household can exceptionally meet financial needs based off of the existing resources. Another example would be if you do not have children and if you or your spouse were to pass away, and the survivor earns a high enough income to stand alone.
• Those who might want life insurance would be having dependents. Those who have someone in the household who depends on their income. Another example would be those that do not have to pay for services such as a daycare or nanny, but if in the event of a death it would affect that and become an extra expense to get childcare.

How Can Life Insurance Funds Be Used?

You can use your life insurance funds for a number of needs, including:

• Any immediate needs at the time of death, such as final illness expenses, burial costs, and estate taxes.

• Funds for a readjustment period, to finance a move, or to provide time for family members to find a job.
• Ongoing financial needs, such as monthly bills and expenses, day-care costs, college tuition or retirement.

What is the Difference Between Term and Permanent Life Insurance?

• Term insurance provides you with coverage for a specific period of time. It pays a benefit only if you die during that term. Some term insurance policies can be renewed at the end of the period. Others give you the ability to reenter. Premium rates may increase at each renewal date or each reentry. Many policies require you to provide evidence of insurability at reentry in order to qualify for the lowest available rates. Because term insurance premiums are generally lower than permanent insurance premiums, you may be able to afford a higher level of coverage. Term insurance is good for covering responsibilities that may diminish or end over time, for instance, mortgages or car loans.
• Permanent insurance is designed to be a lifelong policy and is known by a variety of names. As long as you pay the necessary premiums, the death benefit may always be there. These policies are designed and priced for you to keep over a long period of time. In addition, permanent life insurance policies can build cash value over time. This is money that can be borrowed against and, in some cases, withdrawn to help meet future goals. Please note that assessing your cash value may reduce the death benefit and increase the risk of lapse.

What’s the Difference Between Standard and Preferred Rates, and How Do I Qualify for Preferred Rates?

Most often preferred rates require you to be in excellent overall health and not indulge in any harmful activities or have a history of doing so, the younger and healthier you are the cheaper these rates can be. Specifically, that means you must:

• Be within strict limits on height, weight, cholesterol, and blood pressure.
• Have no family history of any significant health impairments.
• Not use tobacco in any form.
• Have no history of drug or alcohol abuse.
• Not be engaged in any hazardous activities.

Is There a Medical Exam to Qualify for Life Insurance?

In most cases, an exam is required. If so, the insurance company may pay the costs and have it done at a time and place convenient for you – often right in your home. Typically, life insurance exams are testing for overall health and drug use.

There are other factors to be looked at such as medical history and your lifestyle in general, in which some of these can affect your eligibility for life insurance. While performing the exam it is common to be asked for a blood or urine sample, and basic physical requirements such as height and weight.

Will My Policy Ever be Canceled for Health Reasons?

As long as you keep your premiums current, your policy can never be canceled because of a change in your health, and you most likely will not be asked to provide evidence of good health in order to renew your policy each year. However, you have the right to cancel your policy at any time.

What Happens if I Become Disabled?

Many policies include a rider that provides a “waiver of premium” for total disability. In the event you become totally disabled for a certain period (generally six months or longer), then Farmers may help to pay your premium for you until you are no longer disabled.

Should I Get Coverage for My Spouse and/or Children?

Coverage for both spouse and children can be a very good idea. The financial strain on a family after the loss of a spouse can be significant, even if the deceased wasn’t earning an income. Often the surviving spouse may consider wanting to take time off work or change jobs in order to spend more time with the children. Coverage for children is also available to cover final expenses. It may also guarantee insurability for the child’s future.

Sources:

1. What is a Life Insurance Medical Exam, Progressive.
2. What is the Difference Between Standard and Preferred Life Insurance Rates? Life Insurance.