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Admittedly, life insurance is not the most exciting topic of discussion around the dinner table. However, it is important to have some type of life insurance policy in place as a safeguard in the event of your death. There would be nothing more tragic than a family that is left with no financial security when a parent or spouse dies. Taking steps now to ensure that your family will have the means to survive in the event of your death is not only smart, but also it is responsible.
There are various life insurance policies you can choose from, which may make the whole process more confusing to you. Although you want your family to be taken care of financially if something happens to you, it is not necessary to purchase an outrageously high amount of life insurance. There are some general guidelines that you can follow to figure out how much your family would need to survive should you die.
As a general rule of thumb, many insurance experts recommend that you purchase a life insurance policy that is equal to 10 times your salary. Therefore, if you make $40,000 a year right now before taxes, you would be encouraged to purchase a policy for $400,000. This is not set in stone, so you should not feel pressured to buy a policy that will cause you financial hardships now. The goal is to provide security for your family in the future should you die, but that does not mean that you should struggle to pay for your policy while you are still alive.
There are affordable ways to purchase life insurance in higher amounts, if you want to stick to the above-mentioned rule. Term life insurance is considered temporary insurance, as it provides coverage only for a set amount of time, such as 10 or 20 years. The life insurance holder would have to pay a premium each year to cover the risk of his or her death, and there is absolutely no cash value to this type of policy. The only way to collect on term insurance is if you die.
If you were to die during the term, your family or beneficiary would be paid the face amount of the death benefit, which would be the amount you agreed to when you signed up for that policy. Term life insurance can be offered for five, 10, 15, 20, 25, or 30 years, at a stable premium. This means that the premium should not go up during the time of the specified term, which is what makes term life insurance so affordable.
Keep in mind that unless you have an agreement from your insurance company, even your term insurance policy rates can go up, without warning to you. Therefore it is vital that you make sure you understand the terms of your insurance policy before you sign on the dotted line. Many insurance companies will guarantee that your yearly premium will not go up, while others will not make that promise.
Life Insurance for Your Family's Protection
A whole life insurance policy is more expensive than a term life insurance policy, however the benefit to this is that whole life insurance does build annuity and it does have a cash surrender value. This means that if you were to surrender the policy before its maturity, you would be able to get a cash amount, whereas with term life insurance you would not.
Whole life insurance policies do increase in value over the years, which is another reason why they are more expensive to purchase than term life insurance policies. Regardless of what type of insurance plan you purchase, you will likely have to undergo some type of medical examination that will determine your rates. The life insurance company that you are working with should make the entire application process as convenient and understandable as possible for you. If you find that the company you are dealing with is not straightforward with you, keep looking until you find a company that will thoroughly explain the whole process to you. It is imperative that you trust your insurance broker and that you feel you are getting the best policy for your money.
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