Ask most people what life insurance is? and they’ll tell you it’s a type of insurance that pays for your family after you die. Just ask the basic policy features, the different types of policies available, how it works? Do i need life insurance? And they’ll probably change the subject. Yes In life insurance, the insurance company pay a lump sum known as a death benefit. Death benefit given to the people you specify (usually your family) after your death in return for the premium you pay. And your family can use the money however they want.
Life insurance is important because it provides financial protection for your family’s future, covering expenses such as medical bills, funeral costs, debts, mortgage payments, and tuition. It replaces income for your family in the event of your death, ensuring their financial stability and preventing immediate hardship.
Let’s review the important topics before we delve further into the subject:
Definition and Benefits
- Life insurance is a legally binding contract that pays the policyholder a death benefit when the insured dies.
- For a life insurance policy to remain in effect, the insured must pay at least one premium upfront or pay regular premiums over time.
- When the insured dies, the specified beneficiaries of the policy will receive the face value of the policy or the death benefit.
- Term insurance policies expire after a certain period of time. Permanent insurance policies remain active until the insured dies, stops paying premiums, or waives the policy.
- A life insurance policy is only as good as the financial strength of the company that issued it. If the company is insolvent on your death, your family may be broke or government guarantee funds may pay some of the claims.
Do i need life insurance? Who needs life insurance the most?
The purpose of life insurance is to provide financial assistance and support to people who are financially dependent on you after you die. Of course, if you survive a certain year, you can get that financial support for yourself.
For peoples that own a mortgaged home with someone (spouse, children, partner and …). But they are unable to make the mortgage payments after her die, needs it. If you have young children who depend on you to feed, shelter, and dress them until they are old enough to do it themselves, you need life insurance(1).
If you have a really high net income and its assets will cover all your financial liabilities, you don’t need it. You do not need life insurance if you have a modest net income but no dependents (for example, if your children are grown). So really, if you’re financially well off, you usually don’t need it.
Is it an investment?
On the other hand, after many people who don’t understand the purpose of life insurance started asking: Why they should continue paying for the policy for years if it expires and eventually they get nothing? and the premiums they pay are like money falling into a black hole.
Some best life insurance companies such as New York life insurance company have produced a product that will satisfy them as well. They have also named it Whole Life Insurance. So the insurance industry said listen, you give us more money and we’ll invest for you so we can guarantee you get some money in the end. In other words, Whole Life insurance investment.
life insurance Problems
Now another question is on the minds; with this types of insurance, I have to pay a certain premium every month. What if my situation is better and I want to pay more? Or when my situation is very bad for a while. can I borrow some of my savings and return it later? Despite these questions and requests, some companies such as New York company has issued universal policy. It gives you flexibility in payments and the opportunity to borrow money from your savings. Of course at a cost.
The problem with Permanent Life insurance is that the insurance industry doesn’t have to maximize the return on your investment. They just have to give you back what they’re guaranteed. so their approach tends to be pretty conservative. Also, they often charge high administrative fees (which they remove from your policy). So you will earn less on this investment than you should due to a conservative investment approach.
The thing is, most people normally don’t think about saving at all and invest in the future. So some investments ( Whole Life insurance ) are better than no investments at all. at least it’s a forced savings. Also, even if the returns are quite modest, they are at least guaranteed. Therefore, it is meaningful for people who are extremely risk-tolerant and will not save or invest on their own. Otherwise, term policy makes more sense.
What medical exam is required for life insurance
A medical exam for life insurance is a standard part of the application process that confirms your health status and determines your premium. The exam is usually performed by a nurse, not a doctor, and paid for by the insurer. You can choose the place and time of the exam. But you should wear a short-sleeve shirt for the bloodwork. The exam consists of two parts: a verbal questionnaire and a physical exam. The questionnaire asks you about your personal and family health history, smoking, alcohol, medicine, and allergies.
The physical exam measures your height, weight, blood pressure, pulse, and may include blood and urine tests. The tests may screen for conditions such as diabetes, cholesterol, HIV, hepatitis, and drugs. The insurer uses the exam results to build your risk profile and decide if you qualify for the policy and what your annual premium will be.