In the middle of a pandemic that puts to questioning everything we knew before, more and more people start considering life insurance. Thinking about the moment you may exit this world is not comfortable, but making sure your loved ones are financially safe in an unfortunate moment like that is much more important than comfort.
Life insurance should be one of the main financial tools in any household. However, one of the reasons people seem to waive life insurance from their priority list is because there are many questions they haven’t found answers to.
Who can benefit from my life insurance? What does the medical exam include? How much insurance should I buy?
These are only a few of the most common question financial advisers get when it comes to life insurance. We tried to gather a few of those questions and answer them, to make things a little bit clearer.
Am I obligated to have life insurance?
Life insurance is not mandatory for anyone and if you don’t have children or others depending on you to support them financially, then you may not even have to consider life insurance after all. However, if your family is depending on your income, then life insurance should be a must.
There are four main reasons to consider life insurance:
- Mortgage and loans protection: in the event of your death, your beneficiary can use the policy to cover outstanding loans or mortgage, to avoid outstanding bills
- Income replacement: the death benefit paid by the insurance to your family can help them continue to live the life they were accustomed to.
- College funding: your children can use your insurance policy to pay for their education
- Final expenses: planning one’s own death is never pleasant, but medical bills, burial costs and funeral expenses can add up and result in a few thousands of dollars that would have to go out of your family’s income. They can use your policy to cover those expenses.
How much life insurance should I buy?
This is one of the questions financial advisers get very often, as people often wonder if they are buying too much insurance. The only moment you can say you are buying too much life insurance is if you can’t afford it. Otherwise, the main advice is to purchase as much insurance as you can afford to.
If you are still wondering how much insurance to purchase, there are some rules of thumb you can follow. One of those rules is to take 10 times your annual salary, but for some people that may not be enough. Try to consider how your income and your lifestyle may change in the next 10 years and go from there.
Another way to determine how much insurance to take is to consider any unpaid expenses. Add up your student loan, mortgage, car loans or any other major expenses, take the total and go from there. This way, you will know for sure your family won’t have to be the ones paying out your debts.
What is the difference between cash value and face value of an insurance?
If you take a look at a life insurance policy, you will see two very different values: cash value and face value. You will probably observe the numbers for these two differ quite a lot, and for good reasons.
For those of you wondering what is face amount of life insurance, it is the death benefit your beneficiaries will receive once the insured has passed away. You will find this figure in the policy’s schedule of benefits.
The cash value of your policy is the amount you would receive if your decided to surrender your policy early and require cash up front. Insurers record this on the monthly statements that will be sent to you.
Is a life insurance exam hard to pass?
For those with no heat issues, the life insurance exam should be no problem. Just make sure to drink plenty of water the days before the exam and follow any instructions the nurse may give you.
During you visit, the doctor will be examining a few things, such as your height, weight and vital signs, as well as a blood and urine sample. Some policies may also require an EKG, but that’s not a rule. The doctor will also be talking to you about any surgeries you have had, if you take any medication, as well as your family’s medical history.
If you have been declined life insurance due to your health condition, some insurers also provide no medical exam policies. Keep in mind they will be more expensive than standard insurance.
Who can be the beneficiary of my life insurance?
Usually, the family or spouse is chosen as the beneficiary of a person’s life insurance, but that’s not set in stone. You can assign anyone to be your beneficiary and there is no need to be a legal connection between you.
If you decide not to name a beneficiary, death benefits will go to your estate and then it will be divided according to the law. If you do name a beneficiary, make sure they know what they will receive.
If your spouse is not listed as a beneficiary, keep in mind that there are some states with community-property laws in place, where your spouse might be entitled to a portion of the benefit
My work pays for my life insurance policy. Should I consider additional coverage?
Employers can provide affordable life insurance for their staff without the need of a life exam in form of group policies. However, these group policies may sometimes pay an amount equal ton one or two years of salary, which may not be enough to cover your family’s needs.
Also, if you were to leave the employer, you may not be able to take the coverage with you. Your safest and most beneficial bet should be purchasing life insurance separately, so that you get full control over your policy and won’t have to worry about other circumstances such as changing employers.
