IN YOUR PRIME: What to know about life insurance

Millions of adults go to great lengths to protect their assets. Those measures run the gamut from simple everyday efforts like utilizing two-factor authentication when accessing financial accounts via online or mobile banking apps to more complicated undertakings like estate planning. Life insurance is a component of estate planning that is vital to anyone looking to protect their assets in the event of their death.

Explaining life insurance

Life insurance is both similar to and different from other types of insurance. Like homeowners and auto insurance policies, life insurance provides financial protection in difficult circumstances. A life insurance policy is a contract between an insurance provider and a policy holder that guarantees a payout to beneficiaries designated by the insured individual in the wake of that individual’s death.

Personal history

Insurance providers differ, but individuals interested in life insurance can expect to be asked about their medical histories and lifestyle habits when discussing policies. Prospective policy holders will often be asked to sign waivers that allow providers to access their medical records. This is necessary so companies can get an idea of the health of the person applying for life insurance, which will determine the cost of a policy. That information, as well as family history, is important because it can serve as an indicator of future health risks. Some variables, including lifestyle habits like smoking, won’t necessarily appear on an individual’s medical history. In an effort to address that, insurance providers typically ask prospective policy holders to answer a variety of questions about their lifestyle, including whether or not they smoke and how much alcohol they consume. It’s vital that individuals answer these questions honestly, as companies can deny payouts to beneficiaries if they determine policy holders misled them during the application process.

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Coverage needs vary depending on the individual. Life insurance is intended to provide for loved ones in the aftermath of a policy holder’s death. How much money will those individuals need to pay their bills? Young adults who are just starting their families may want more coverage than aging adults who have already paid off their homes and saved a considerable amount for retirement. The National Association of Insurance Commissioners recommends that individuals ask themselves how much of the family income they provide and if anyone else, such as an aging parent, depends on them for financial support. Answering these questions can help individuals determine how much coverage they need.

Types of coverage

Insurance providers offer various types of life insurance policies. Term life policies are among the most popular because they tend to be affordable while offering substantial coverage. There are different types of term life policies, but policies tend to run for anywhere from 10 to 30 years and expire around the time individuals reach retirement age. That’s because many people save enough for retirement and don’t have the sizable expenses, such as a mortgage, to account for at this point in their lives. That means loved ones won’t necessarily need to be provided for in the wake of a policy holder’s death.

Permanent life insurance policies last until the policy holder’s death so long as he or she continues to pay the premiums on time. Financial advisors can help individuals understand the ins and outs of the various types of permanent life insurance policies, which differ from term life policies because they can serve as investment vehicles and sources of loans in certain instances.

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