What is Life Insurance and What Does it Cover?

Do I Need Life Insurance? Life insurance is one of the most overlooked means of securing long-term financial security for your family and heirs. There are many common misconceptions about the price and availability of life insurance options available today. Perhaps you think it's too expensive or fear cumbersome medical questions and testing, especially if you have some health risks or a disease like diabetes. Well luckily for your heirs and peace of mind, there are affordable life insurance options for almost everyone, regardless of financial resources or heath. Life insurance comes in two basic offerings, term life insurance or whole life insurance. Term insurance is quite simple; it pays out should you pass during the term of the insurance policy. For example a $100,000 five-year term life insurance policy will pay out $100,000 if the insured passes away during the five-year term. These policies are generally fixed in value, but there are some that are structure in a way that the value of the benefit decreased over time, which helps prevents the premiums from increasing as you age. The cost of term life insurance depends on your age and health. There are many companies that offer various levels of coverage without medical questions or exams. If you are looking for low-cost term insurance you should look at your employers benefit offerings. You can often purchase term insurance at favorable rates without medical reviews as part of your employee benefits package. Professional organizations, unions, and clubs often have term life insurance offerings with attractive rates as well. Finally purchasing multiple insurance products from a single provider can offer discounts versus using multiple companies. There are many different types of whole life insurance including traditional whole life, universal life, variable life, and variable universal life. The general premise of whole life is that the policy will pay out a fixed value regardless of long you live. Whole life policies are designed such that the benefit and the premiums remain constant over your life. Obviously the older you get the more likely life insurance to payout therefore without this approach whole life insurance as you age would become extremely expensive. Under whole life, by paying a greater premium than needed to pay claims when you are younger you essentially bank premiums to offset rising costs as you age. Another feature of whole life is that excess premiums 'bank' as something called cash value, which is paid out if you cancel your policy for some reason. Whole life insurance is often referred to as 'cash value' insurance due to this benefit. Both types of insurance provide a valuable source of funds for your heirs to settle your debts or pay related expenses. Life insurance policies give you a sense of satisfaction knowing that your family will have the financial safety needed to use for living expenses, pay off debt, or pay for education. Life insurance proceeds are generally not taxable to the beneficiaries but are taxable to your estate, so it is recommended that you consult a tax planner to support your specific situation. The type and value of insurance you need will depend on your personal situation and should be assessed as part of your overall financial plan.
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The Insurance Guide
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