Frequently asked questions about life insurance “good to know”
Life insurance is one of the biggest items on your "grown-up" to-do list. You and those who depend on you may need it at any time. There's simply no way to know. However, like any insurance product, life insurance can be confusing. Often, policyholders or prospective life insurance applicants will be concerned about the premiums and whether the purchase is worthwhile. Is it necessary? Why do we need it? How does it work? What's the difference between term and permanent? There are so many questions – and Panda7 has the answers.
Check out our list of popular "good to know" questions about life insurance.
How does life insurance work?
Both permanent and term life insurance policies work by spreading the financial risk among several people, who then contribute to a pool. If a policyholder were to experience an unforeseen event, such as death, this would minimize their losses. Essentially, it involves setting aside money to cushion the potential loss your dependents and loved ones might face, as well as paying off any outstanding debts after your death so they are not passed on to your heirs.
When is life insurance necessary?
A general rule of thumb is this: life insurance is essential when you have dependents who would be without income or would face a significant financial burden if you were to die. While life insurance isn't legally required, it's highly recommended. Life insurance is also a way to pay off significant debt that you wouldn't want to leave to your children, spouse, or other dependents. This includes debts such as mortgages, credit card debt, loans, and so on.
Who is not eligible for life insurance?
According to the insurer, you may be able to purchase life insurance in most circumstances. However, the most insurable individuals are healthy people between the ages of 18 and 60. People with chronic illnesses or a history of heart disease, respiratory disease, cancer, etc., may have more difficulty obtaining insurance.
How much does life insurance cost?
It depends! Policies can start very low when you buy them younger and can increase over time. It's advisable to buy a policy as soon as you have dependents or think you might need them soon, so you don't risk becoming ineligible for coverage later or risking a premium increase due to age-related health issues.
How much life insurance do I need?
Again, it depends. There's no single right answer to this question, but you can ask a life insurance broker to help you review your situation, needs, and budget to determine a solution. They should examine your existing assets, debt, dependents, and any future plans to determine a coverage plan. You might want to review your coverage if you experience major life events, such as getting married or having a child.
What is term life insurance compared to whole life insurance?
You're considering buying life insurance but are stuck between term life insurance and permanent life insurance. There are advantages to both. Furthermore, there are many forms of permanent life insurance, but "whole life" tends to be the most popular.
Term life insurance is generally considered the more affordable of the two options. It helps protect your loved ones and is relatively simple and easy to understand. As long as you continue to pay your premiums on time, if you die, you will be covered, and your death benefit or tax-free payout will be paid to your designated beneficiaries. It's important to note that the policy itself has no cash value, and you will only receive a payment if you die while covered.
A whole life insurance policy is significantly more expensive. However, you are guaranteed a tax-free death benefit upon your death, and your policy will also accumulate cash value over time. This tends to be the biggest incentive for this type of policy, provided you are willing to pay the higher premiums. If the cost is beyond your budget, you could also simply invest your savings in an index fund or speak with a financial advisor about other options.
When do I not need life insurance?
If you are currently single and have no dependents or outstanding debts, and you believe your savings and/or assets would cover your funeral expenses, you probably don't need life insurance. If you are single but have debts, you might want to consider life insurance or see if your savings and/or assets can cover your debts in the event of your death. Additionally, if you have a mortgage, you might want to consider a life insurance policy even if you are single with no dependents.
Life insurance can also help if you are planning to start a family in the future or if you want to leave something for your family or the charities of your choice.
What does life insurance not cover?
Certain causes of death can affect your life insurance coverage. For example, if someone purchased a policy and died by suicide within two years, it might not be covered. Additionally, high-risk activities that result in death, such as parasailing, rock jumping, cliff diving, etc., will also not be covered. Finally, if you misrepresented yourself or lied about your activities, health, circumstances, etc., your life insurance will be impacted. It's a good idea to speak with a broker—like the experts at Panda7—if you're considering purchasing life insurance. We can answer all your questions about coverage, your options, eligibility, savings, and much more.