So, you think you know life insurance?

Insurance is confusing. There’s a reason why so many people make being an “insurance expert” a lifelong career. There’s a lot to it, and it’s not so cut-and-dry as a “contract between the insured and the insurer.” Different products, policies, and coverage types operate differently, offer different protection, and have different terms of agreement. Why is it so important to understand your life insurance? Well, because you wouldn’t want to be paying all your premiums for nothing. You’ll want to have a fair understanding of what you’re covered for, where there might be gaps, and why you’re paying the amount that you are. It’s – complicated, to say the least. You don’t need to know everything there is (that’s why we have insurance brokers!) but it helps to know the basics.

So, you think you know life insurance? Here’s what Panda7 has to say.

A basic description of “life insurance”

Life insurance, in essence, is an agreement between an insured and an insurer. A life insurance policy is designed to provide the insured a specific sum of money to whoever has been named as a beneficiary in the policy, in the event of the insured’s death. This is done in exchange for “premiums” – i.e., monthly or yearly payments made out by the insured during their lifetime.

Now, there are different types of life insurance within the broader definition of “life insurance.” Depending on your needs and financial situation, you may benefit from a short-term or longer-term program. There’s term life insurance and permanent life insurance, and subvariants of both.

What is term life insurance?

Term life insurance matches the description of life insurance as decreed above but it only lasts a certain number of years. When you purchase term life insurance, you specify the term you want. Commonly, terms will come in 10 years, 20 years, or 30 years. You’ll want to determine how long you’ll actually need your term life policy when you purchase it. There are several forms of term life insurance.

Renewable term life insurance offers a quote for whatever year the policy has been purchased. Per year afterwards, premiums will increase. Typically, renewable term life insurance is the least expensive policy to purchase from the start.
Decreasing term life insurance is “renewable life insurance” except coverage decreases over the term of the policy at a predetermined rate.
Convertible term life insurance allows the policyholder to convert their policy into a permanent one at the end of the term, if they so choose.

Work with a broker to determine the best option for you when it comes to term life insurance, and whether term life insurance is the choice for you.

What is permanent life insurance?

Permanent life insurance is designed to offer coverage for the entirety of the insured’s life, unless premiums are halted or if the policy is surrendered. It is more expensive than term and has different subvariants which offer different benefits/come at different costs.

Whole life insurance is a kind of permanent life insurance which accumulates cash value over the policyholder’s lifetime. The policyholder may use the cash for any reason, like to pay premiums or for a source of loans.
Universal life insurance has a cash value component which earns interest and features flexible premiums. Premiums may be adjusted with time.
Indexed universal life insurance allows the policyholder to earn an equity-indexed or fixed rate of return on the cash value component.
Variable universal life insurance enables the policyholder to invest the cash value into another separate account. It also has flexible premiums.

What kind of life insurance should you buy?

The question: do I buy term or permanent life insurance? – is largely down to your finances and why you need life insurance. What expenses would you need covered in the unexpected event of your death? Think of things like mortgages, tuition, long withstanding debts, student loans, and so on. If you are the sole breadwinner, you’ll also want to consider income replacement for your partner or dependents.

Work with a broker if you are still unsure. If you’re on the fence, a convertible term life insurance policy is never a bad option for those who may benefit from permanent life insurance but aren’t sure if their situation will change in a few years.

How much does life insurance cost?

Like property insurance and other insurance products, life insurance does not have a single price tag. It costs differently for different people. Still, it’s about risk. It’s a tad morbid, but the likelihood of the insured’s death during the policy period is the biggest factor impacting your rates. Here are the variables that may go into calculating your life insurance costs:

Your age
Your sex
Existing health conditions
Your smoker status
Your family medical history
Your lifestyle
Your occupation
Your driving record

Evidently, things that will make your chances of dying during the policy period higher will impact your rates negatively. Men tend to pay more for life insurance than women and older folks tend to pay more for their life insurance. Smokers will see an increase in risk-based premiums, as will those who engage in riskier lifestyle activities, like skydiving, construction, car racing, etc.

How do you purchase life insurance?

You can do so through a broker, like the ones we have here at Panda7. We understand that life insurance can be confusing, which is why we’re here to break it down. Many people use their life insurance to provide money to beneficiaries who would otherwise suffer significant financial hardship upon the insured’s death. For wealthier individuals, having life insurance to accumulate a tax-deferred growth of cash value can be especially strategic. It also may help with estate planning.

Planning on starting a life insurance policy? Get started by contacting Panda7 for a free quote today. One of our experts can work directly with you to navigate your personal needs.