Life insurance is one of those ostensibly complex issues that is often misunderstood and surrounded by misunderstandings. If you've never considered taking out a policy, it's about time you did.
Because as it turns out, life insurance is a pretty straightforward contract between an individual and an insurance company. Here are five basic facts that should help clear any misinformation.
1. Life insurance is a financial plan, not an investment.
Some brokers promote life insurance as a way to make money. No type of coverage or policy can help you build your wealth, not even those with a cash value. Think of life insurance as a financial security plan or retirement plan, not an investment or business venture.
2. Term Vs whole life insurance
There are many different types of life insurance plans, but they always fall into one of two categories: term or whole life. Term life is a policy you purchase for a specified period, usually between 10 and 30 years. Whole life is a life-long policy with a cash value.
3. Life insurance is surprisingly affordable.
Many people shy away from life insurance policies because they assume that the premiums are too expensive.
Well, that's just not true. According to Finder, a healthy middle-aged Australian can pay as little as $4.40 per week for a $250,000 insurance policy. Most policies can be even much cheaper if you take them at a young age.
4. A life policy can be so much more.
The main purpose of life insurance is to secure your beneficiaries' financial future after you're gone.
But it can be so much more than that. For instance, most insurers include optional life insurance riders in their policies to cover financially straining situations such as disability, loss of income and terminal illness.
The monetary worth of may also be used to get loans and other financial benefits.
5. Your credit score may not affect your life insurance premiums.
People with poor credit ratings are statistically more prone than those with excellent credit scores to submit insurance claims.
In some cases, insurers regard a low credit score as a high-risk factor, which often translates into higher premiums - for instance, when buying a car or home insurance.
But when it comes to life insurance, things are a bit different.
Although the underlying rules, guidelines and requirements may vary between companies, the credit score generally has little or no influence on life insurance terms.
When calculating premiums, insurers typically focus more on life expectancy than the client's credit history.
Also, filing for bankruptcy may not affect your policy either.
However, apply for life insurance shortly after filing for bankruptcy or with several bankruptcy cases on your record. The insurer may have the ability to limit your coverage options.
6. It's for everyone
Life insurance is not just for senior citizens and retirees. Anyone can take out a policy, including children. Insurers evaluate insurance applications on a case-by-case basis.
Every policy's terms and premiums are personalized to an individual's status, such as age, health history, dependents, financial situation, and the ability to pay the premiums.
Regardless of your age, health condition or job situation, there is a policy for you.
Hopefully, these few facts help shed light on what you should expect when buying your first policy.
Before purchasing a policy, you may always speak with an insurance representative to get all of your questions addressed.
Additionally, suppose you're not happy with your current policy. In that case, there are ways to switch things around to suit new preferences conveniently.
Make sure to make use of the many online comparison engines to ensure you get the best price on your existing or new policy.
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