Life Insurance

Insurance, by its nature, is a way of pooling risks. Everyone in the pool pays insurance premiums while hoping he will not need to collect. The company bears the risk, hoping that the amount of the premiums paid will cover any losses incurred.

In the case of life insurance, your life is the risk. The insurance company offers a policy to an individual after carefully weighing the likelihood he will die while the contract is in force.

Lifespan is an important question to the company that insures you. For example, most life insurance companies assume that everyone will die by the age of 100. Because some people are living longer today, there are companies that go to age 121. In addition, to maintain financial solvency, a company must consider how much premium it must collect before it pays out a death benefit. With that in mind, if you buy a life insurance policy when you are 25 years old, you will pay a lower premium for the same policy than a 65-year-old because you will pay the premium for a longer period of time. The 65-year-old will pay more because there are fewer years for the company to collect premium before the person reaches 100.

An insurance company agrees to pay your beneficiary a specific amount of money when you die. That amount is determined when you apply for life insurance and is specified in the policy you buy. Anyone can be named beneficiary including relatives, friends, organizations, charities, business partners, etc. Generally, you will name a primary and secondary beneficiary. The secondary beneficiary will receive the death benefit only if the primary beneficiary is no longer living at the time of your death.

You pay for the policy by making premium payments. There are numerous payment plans available including monthly, quarterly, semi-annually or annually. You also may pay the entire premium in one lump sum, also known as single premium. The amount of premium you pay depends on a number of factors such as age, gender, health, whether you are a smoker or a non-smoker, how much insurance you are purchasing, type of policy you are purchasing, and your lifestyle, such as if you participate in risky activities like race car driving or hang gliding.

Paying for funeral and burial expenses can be a heavy financial burden. If the person who dies is the primary wage earner for the household, it may be difficult for those left behind to pay the mortgage, utilities, car loans, food and any other expenses. It could be very difficult to maintain the family’s same standard of living without that income. Life insurance can make sure your family is not burdened with the debt left behind and can ease the financial hardship associated with the death.

Purchasing life insurance should be considered when you are starting a family, getting married, planning for your children’s education, or planning for retirement. These are just a few examples.

Families with young children may have a need for life insurance. If there is a loss of income in the family, the family’s future plans may be compromised. A child who will be ready to go to college in a few years may not be able to go. There could be additional expenses, such as childcare, if the surviving spouse has to take on additional work to support the family. Without sufficient income available to the family, other things will have to be considered as well. If you died, would your family be able to afford the house in the community you live in now? Would your children be able to go to the same schools? A life insurance policy can do more than just replace lost income. It also can provide money for unexpected expenses that may arise in the future. In order to get the best life insurance policy for your family, you need to know what is available to you. It is very important to do some research before you buy a life insurance policy. This does not have to be a long, drawn-out process. However, it is wise to research companies and products to find one that fits your personal situation.

Call local insurance agents and set up appointments to speak with them about the products they offer. They will often fill out a “worksheet” with you to determine how much and what types of insurance best suit your needs. Do your own research on the Internet. If you do not have a computer, go to your local library. Also, friends and family can be very helpful. Odds are, someone you work with, are associated with, or a family member has purchased life insurance.

When you buy life insurance, you want coverage that fits your needs. It makes good sense to ask a life insurance agent or company to help you. An agent can help you review your insurance needs and provide information about the available policies. If one kind of policy doesn’t seem to fit your needs, ask about others. This buyer’s guide provides only basic information. You can get more facts from a life insurance agent or company or from your public library. Do not purchase any life insurance product if you do not understand exactly what you are purchasing. Be aware that once you have purchased a life insurance policy, you have at least a 10-day period (“free look” period) to review the policy. If you find, for any reason, that you do not want the policy, it can be returned to the company for a full refund of premium during this free look period.

Source: insurance.ky.gov/Documents/LifeBuyersGuide111611.pdf