Life Insurance 101

Life insurance is an essential part of any financial strategy. It provides a death benefit to help protect the most important people in your life. It can replace lost income for your dependents, create inheritances, provide financial protection for your business, and much more.

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What are the different types of Life Insurance?

When you understand the different types of policies available it’s much easier to find the right policy to fit your needs and goals. Each policy serves a specific purpose.

Term Life Insurance.

Term life insurance lasts for a certain number of years. You can shop 10, 15, 20, 25 and 30 year Terms. The longer the term the more expensive the policy. It’s usually best when you know the end date of the need or obligation you’re covering.

Permanent Policies.

Permanent and Universal Life Insurance policies can cover you for up to your lifetime, and some policies can offer advantages while you’re alive. When structured correctly some Universal Life policies are excellent tools for retirement savings.

What Life Insurance Terminology is important to know?

Beneficiaries. A beneficiary is the person or entity you name to receive the death benefit. You can name: One person. Two or more people. Even the trustee of a trust you’ve set up.

Premiums. A life insurance premium is the amount of money paid to your life insurance company in exchange for your life insurance coverage.

Death Benefit. The death benefit is the sum of money that the insurance company pays to beneficiaries when the insured passes away. This is usually tax-free and paid out in one big lump sum.

Riders. Riders are optional additions you can make to your life insurance to provide specific coverages and tailor you policy to your specific needs if you find them necessary. These riders can be benefits if you become chronically ill or disabled, need additional death benefits, or need help paying your premiums. Some riders are available for an additional cost.

How is the cost of Insurance determined?

The cost of insurance is calculated by estimating mortality. Mortality is the rate at which people die. These calculations are based on manys factors including age and one’s health history. This process is called underwriting.

Generally, the younger and healthier you are, the less cost your life insurance premium is. Thus, purchasing life insurance while you are younger can save you thousands of dollars over the life of the policy. Also, by waiting, there is always a possibility of incurring a health disease which will then increase the amount you have to pay for life insurance, and could potentially even make you uninsurable. We’ve seen this too many times.

Several other factors are taken into consideration when underwriting life insurance. For example, things like;

  • Tobacco or Marijuana use
  • Family history
  • Health conditions
  • Piloting
  • Driving violations
  • Risky hobbies and potentially dangerous jobs

This all could increase your premiums.

Health Classifications in Life Insurance

  1. Preferred Plus. This category has the lowest risk to companies and is assigned the best life insurance rates. This is the best rating you can receive.
  2. Preferred. Preferred individuals aren’t in “excellent” health, but are still considered a lower health risk. It’s the #2 best rate class and still provides extremely affordable coverage.
  3. Standard Plus. Standard Plus individuals are considered ‘above average’ health. Think of this as the #3 best rate class you can recieve.
  4. Standard. This category holds “average” individuals, meaning they are usually average height and weight and in average health. They are assigned the #4 best rate class.
  5. Substandard: Substandard individuals are the riskiest group to cover because they usually have a serious medical history or diagnoses. There are different levels of severity within this category, these are also called Table rated cases and there could be individuals from Table 2 all the way to Table 8.

All insurance companies have unique niches when it comes to underwriting. That’s why it’s very important to talk with your agent directly because some of these factors above will NOT impact your premium with some companies. Please feel free to contact us with any questions.