10 Things to Know About Life Insurance Before Buying or Replace

1.       When do you need life insurance and when is it not required?

When You do Need Life Insurance

 If anyone relies on you financially, you need life insurance. Life insurance is needed if you are a spouse or the parent of dependent children, but you may also require life insurance if you are someone’s ex-spouse, life partner, a child of dependent parents, the sibling of a dependent adult, an employee, an employer or a business partner. Life insurance can be structure for many different reasons.

When Life Insurance is Not Required

 If you are stably retired or financially independent, and no one would suffer financially if you were to be no more, then you don’t need life insurance. You may, however, consider using life insurance as a strategic financial tool.

2.       What is life insurance.

 Life insurance is a contract (called a Policy) that is between a life insurance company and someone (trust, individual, company) who has a financial interest in the life of someone else. It’s up to the company to pay the death claims when the worst happens and it’s up to the policy owner to pay the premiums to keep the life insurance in good standing.

3.       There are 4 primary players in a life insurance policy.                                                                                                 

 (Insurer)= the insurance company that is responsible for paying claims in the case of death.

              (Owner)=person or entity responsible for paying premium payments to the insurance company.

               (Insured) is the person who is covered by the life insurance in case of death.

               (Beneficiary) the person or trust or entity that will receive the death benefit, or the life insurance claim is the case of the insured's passing away.

4.       What does life insurance do.                                                                                                                                                                                                                                                                                            Life Insurance applies a monetary value to someone's life, but it also helps compensate for the financial hardship that will occur when someone with a financial interest passes away. Life insurance helps the ones left behind with the costs of final expenses, outstanding debts, mortgages, planned educational expenses, and the loss of income. This is why life insurance is so important for the bread winner of a single-income household, but still important for a stay-at-home spouse.

5.       Life insurance main purpose.                                                                                                                                                                                                                                                                                   Life insurance main purpose is a risk management tool (reducing the financial risk upon death of someone) and not an investment. There are some life insurance policies that have an investment feature that can offer a degree of tax privilege, insurance is rarely an optimal investment. There are more efficient investment strategies to help you reach your investment goals and objectives.

6.       There are two main kinds of life insurance that you should become aware off before purchasing life insurance and they are permanent and term insurance.                                                              Term life insurance is the simplest form of life insurance and is the least expensive and most widely applicable. With term insurance the Insurance Company bases the policy premium on the probability that person buying the policy will die within a period, in most cases 10, 15,20, 30 years. The premiums are guaranteed for the length of the time stated in the policy.

Permanent life insurance includes this same probability of the policy owner’s death but also has an investment mechanism within the policy. This investment mechanism that is called cash value is designed to make the policy last for a life time in some cases. There are different types of permanent insurance and the main difference is the actual investment inside the policy. This determines if the policy is a whole life, universal life, guaranteed universal life, or an index universal life policy. These policies are very complicated, so beware before you purchase these kinds of policies.

In some cases, it might be convenient to purchase both insurance policies to cater to your needs.

7.       Number one question people ask is the cost of life insurance.                                                                                                                                                                                                                                One of the main questions I get when someone is purchasing life insurance is “How much is this going to cost me”. Life insurance can be extremely expensive, but it can also be astonishingly inexpensive. Most people are surprised when they see how much a simple term policy costs because the cost is insignificant. When you talk about a permanent policy people might think that life insurance is not in their budget because these kinds of policies have a lot of bells and whistles added on. The most important thing is understanding your options and purchasing the right one for your situation.

8.       What amount of death benefit should I cover.

Determining the exact amount of life insurance death benefit does not have to be that complicated. The best thing is to make it as simple as possible. In some case’s someone might take their income and multiply it by 8 to 15 depending on a lot offactors like how many kids they have, does the wife work, how old the kids are and how long does this income need to be there for the family. In some other cases someone might take all their dept they have and use that to come to an exact amount of life insurance. There is no right, or wrong answer and the most important thing is to understand why you are getting it and what will it be used for.       

9.       How can I buy life insurance?

There are many ways to buy life insurance. You can execute a policy on your own, over the internet, by phone or by using a life insurance agent. There are many tools available to help you determine the amount of life insurance you need to purchase, to meet your objectives.

The premium does not change based on how you purchase life insurance. Using an agent can help you guide you through the underwriting process and choosing the right product based on your needs.

10.   When should you keep a policy or exchange a current policy?

One of the most important things to know about a life insurance is when should you cancel or keep a policy you already have. You should know your options with the life insurance you have, and you can get this information from the agent that sold you the policy or by calling the insurance company and talking to an agent. I would say that talking to an agent at the company is the best thing because that individual does not have any interest in selling you another insurance policy. The second step will be to compare the new policy that is being offered and see what you will lose by canceling the current policy and what you would gain by replacing the policy with another one.

If you need a professional to review your current life insurance policy or want to go over all your options for life insurance, do not hesitate to contact Fiducia Financial & Insurance Services. Juan Carlos Salazar or one of the friendly agents will be more than happy to help you.

Juan Salazar

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See Also Permanent Life