A Financial Safety Net for Your Family
Having a family and dependents who rely on you in many ways is wonderful, but it also brings much responsibility. Focusing on financial responsibility, what happens if you die? Can your spouse, children, and other loved ones carry on financially? Well, life insurance is available to help them do so. This insurance acts as a financial safety net to help cover the costs that your loved ones could incur without your income, and the beneficiary can use this money to pay a mortgage or rent payments, funeral costs, college tuition, medical bills, ongoing financial support and more.
Choosing the Life Insurance Payout
Just like most other insurance plans, life insurance has a premium and a policy, but a new term involved in this coverage is beneficiaries. When setting up a life insurance policy, you will be required to list the people who will be listed as beneficiaries and will receive the insurance payouts (benefits) from your policy. The more life insurance you purchase, the higher the premiums are, but also, the higher the payouts to your beneficiaries. Deciding how much life insurance to carry, should prompt questions in the event of your passing:
• How much is left before our mortgage is paid off?
• What amount will my children need for basic financial support?
• Can this fund my children’s college education?
• Will my spouse be able to work, or is my income required for their financial survival?
Putting together a big picture of the financial coverage needed if you were gone, will help you figure out how much money is needed to pay for the expenses that you need and want to be covered.
Types of Life Insurance
Life insurance policies are purchased as either term or whole life coverage. Most insurance companies require a medical exam, including blood work, before they quote premiums or offer coverage.
A term life policy only provides death benefits if the policyholder dies while the policy is active. If you purchase a term policy at age 30 that expires when you’re 60, you have a 30-year policy length. If you die before 60 the policy pays your beneficiaries. If you live past age 60, a new policy would be required to continue coverage. Term policies guarantee your beneficiaries a specific sum in the event of your death and are generally lower in premiums. This coverage is a good basic level in the event of an expected tragedy to help beneficiaries avoid financial disasters. Many policies offer the option of receiving an early payout if you are diagnosed with a terminal illness. That payout can be used to cover end of life and medical expenses.
Whole life insurance policies still provide death benefits to beneficiaries, but they differ from term policies because they remain active until the policyholder’s death. In other words, if these policies are renewed, and premiums paid, a whole life policy will not expire in a predetermined number of years, the way term life policies expire. Whole life insurance is often viewed as an investment as these policies may grow in value over time to provide a cash value. This investment component allows for an option to borrow, tax-free, against the policy’s cash value during your lifetime. Keep in mind that like other investment options, fees, and commissions could be applied and deducted for your investment gains.
Most employers offer life insurance benefits to employees. These policies are paid for through payroll deductions and renew every year. If you lose your job or change employers, you lose these benefits.
When to Buy Life Insurance
For term life policies, purchase when you are young and healthy to lock in payments that are guaranteed to remain the same during the policy term. The healthier you are, the less you will pay for these premiums. Purchasing later will require more out-of-pocket on monthly payments. As for whole life policies, these will also cost less now but these premiums adjust and increase in time. Factors like your age, your health, your habits, and your family’s medical history will be required for policy renewal and will all play a role in how much your monthly payments are.
Actual Cash Value (ACV) – The amount of money an insurer will pay in the event of a loss, replacement, or repair.
Annual Maximum – The most money a dental plan pays for dental care under the terms of your policy within a 12-month benefit period. Any amount over the annual maximum is paid by the insured.
Beneficiary – Any person(s) receiving benefits provided by an insurance policy.
Bundling – Purchasing two or more insurance policies with the same company for a price discount.
Claim – A request for insurance company compensation as part of policy coverage for a covered loss.
Collision Coverage – Insurance to repair or replace a vehicle damaged in a collision, regardless of who is at fault.
Comprehensive Coverage – Insurance protection for vehicle damages that occur in an event other than a collision. Including theft, natural disasters, vandalism, and most things not covered by collision coverage.
Co-payment – A fixed amount of payment made by a beneficiary (especially for health services) in addition to that made by an insurer.
Coverage – The protection against financial loss provided by an insurance contract for policy specific inclusions.
Deductible – A set amount of money required by you to pay towards care, damages, replacement, or repair costs before your insurance coverage kicks in to cover additional or remaining costs.
Dental health maintenance organization (DHMO) – A structured type of dental plan with provider approved dentists and services negotiated to offer reduced prices to the policyholder.
Dental indemnity plan – A dental insurance plan offering the policyholder a more personal selection of dentists and services, with insurance also paying more of the costs. This plan typically has the highest premiums.
Dental preferred provider organization (DPPO) – A dental insurance plan allowing policyholders to work with dentists that are in or out of the plan’s network, with out-of-network providers costing the policyholder more for services.
Depreciation – A decrease in the value of property (e.g., house, car, roof, water heater, etc.) due to wear and tear or becoming obsolete.
Elimination period – The time period between an injury and the receipt of benefit coverage or payments.
HMO: Health Maintenance Organization – Health Maintenance Organization (HMO). A type of health insurance plan that usually limits coverage to care from doctors who work for or contract with the HMO.
In-network – Refers to healthcare service providers whose services are contracted with your insurance company, and services are less expensive than out-of-network providers.
Insurance Rider – A rider is an insurance policy provision that adds benefits to or amends the terms of a basic insurance policy. For an additional cost, riders provide insured parties with options such as additional coverage, or they may even restrict or limit coverage. A rider is also referred to as an insurance endorsement. It can be added to policies that cover life, homes, autos, and rental units.
Lapse – The portion of uninsured time between policies caused by the termination of a policy for non-payment or other unmet contractual requirements.
Liability Coverage – A basic level of vehicle insurance where a minimum amount of coverage is required by law. Often set by each state individually and can vary widely.
Loss – The injury or damage sustained by the insured that the insurance company agrees to cover.
Market Value – The estimation of how much your property is worth if sold today.
Negligence – A lack of reasonable care exercised by a person/party in a given situation.
No-Fault Insurance – A type of car insurance for covering the costs of medical, hospital, and funeral expenses that result from a car accident —regardless of who is at fault. Also called Personal Injury Protection (PIP) Insurance.
Out-of-network – Refers to healthcare service providers who do not have negotiated rates with an insurance company, with services often costing more than in-network providers.
Personal Injury Protection (PIP) Insurance – See No-Fault Insurance.
Policy – A formal contract of insurance consisting of terms, conditions, and coverage specifics.
Policy Length – Or policy duration is the length of time during which an insurance policy remains valid—ranging from months to years depending on insurance type.
Policy Owner – Person or party named in the policy, having the authority to make policy changes.
PPO: Preferred Provider Organization – A healthcare provider who has a contract with your insurance company to provide services to you at a discount.
Premium – The amount of money an insurance company charges for providing coverage.
Reinstatement – The reactivation of a policy after a lapse in coverage.
Replacement Cost Value (RCV) – Coverage paying for the replacement or repair costs to restore damaged property to pre-damaged condition.
Term – The length of time for policy coverage. Also, see policy length.
Total Loss/Totaled – Property damage determined by the insurance provider to be destroyed or exceeds the cost of repair.
Underinsured Motorist Coverage – Coverage for bodily injury or property losses caused by a motorist with coverage insufficient in covering the full amount of damage costs.
Uninsured Motorist Coverage – Similar to underinsured coverage, uninsured coverage can help pay for damages when an at-fault driver uninsured, so instead of their policy covering the costs, your policy would.
Waiting Period – A period of time an insured must wait before some or all of coverage is available. The insured may not receive benefits for claims filed during the waiting period.