No one likes to think about life insurance, but it is a necessary task. Perhaps the only thing worse than knowing you have to plan for what will happen after your death is deciding which policy best fits your needs. There is no shortage of life insurance policies available on the market, which can make the undertaking even more tedious. Sometimes, too much choice proves not to be a good thing.
According to data specialists Statista, only 54 percent of the U.S. population currently has life insurance coverage of any kind as of June 10, 2020. Thirty-seven percent of policyholders said the primary purpose for their life insurance plans was to replace income. Another 30 percent said their policies were to cover the cost associated with final expenses, such as burial or cremation.
Whatever the reason for your policy, wrapping your head around the basics is necessary before choosing a life insurance plan that fits your specific needs. One Choice compiled a basic cheat sheet for life insurance that can help in the decision-making process.
What is Life Insurance?
Before diving into researching policies, it is important to have a basic understanding of life insurance. In a nutshell, life insurance provides financial protection for beneficiaries. These are the people you name in the policy who, in the unfortunate event of your death or terminal illness, receive the benefits covered under the plan’s provisions.
Insurers define terminal illness in different ways. As a general rule, a person who is diagnosed by a medical professional with a terminal illness has a year or less to live.
Policyholders agree to pay a premium in exchange for coverage. Payment frequency varies and could be monthly or annual, depending on the terms of the policy. In exchange for paying the premium, the policyholder’s beneficiaries will receive a payout when they die. The funds can be used to cover funeral expenses for the deceased and allow beneficiaries to pay for their day-to-day living expenses.
Life Insurance Terms 101
Understanding the purpose of life insurance is half the battle. There are a lot of industry-specific terms attached to policies that can be a bit confusing. These are some of the most common terms associated with life insurance.
- Benefit amount is the sum an insurer pays for events covered under the policy.
- Insured event refers to the terms under which the policyholder is covered. This could include permanent disability, terminal illness, or death.
- Policy is the legal contract between the policyholder and insurance provider.
- Policy schedule refers to the document that confirms the details of the policy.
- Premium is the amount the policyholder pays for coverage.
- Underwriting is the insurer’s process for determining the level of risk involved in agreeing to insure an individual. Health and lifestyle questions are asked as part of the process of determining the premium.
Types of Life Insurance
Terminal illness and death are not the only conditions covered under life insurance policies. Some plans provide optional coverage for serious illness or total disability that is worth considering. Opting for these add-ons can help cover medical bills and other costs if a policyholder suffers a heart attack or stroke, or are diagnosed with cancer.
There is nothing like a global pandemic to make us evaluate our life choices. Ensuring we have adequate life insurance coverage is one of them.
While it may seem counterintuitive, the COVID-19 pandemic is not hindering the ability to obtain life insurance coverage. In fact, it may be easier to get coverage now. Many insurance companies are honoring the CDC’s social distancing guidelines, which limit or restrict in-person blood and urine testing and weigh-ins. Without them, insurance companies have fewer reasons to reject coverage.
Some insurers are adjusting their coverage options, however, so it is best to ask if the provider you plan to purchase life insurance with has any such limitations.
Five Questions to Ask
Before policyholders sign their names on the dotted line, there are five essential questions to ask that will help narrow down the best options for coverage.
- What benefit amount is best for my coverage needs?
- How much life insurance can I afford?
- What kind of coverage does this policy provide?
- Who are my beneficiaries?
- What information is needed to file a claim?
None of us has a crystal ball and sometimes, the unexpected happens. Preparation is key in life, and that includes having the right life insurance policy at hand.