Life insurance is basically a contract between an insurer and a policyholder where the insurer agrees to pay a death benefit following the death of the policyholder. The policyholder pays their insurance company a monthly premium in exchange for this benefit. The death benefit will go to the beneficiaries of the policyholder, typically the family.
Life insurance is rarely a topic brought up with enthusiasm, likely because it inherently leads to contemplation of death, but it’s important to think about. Sure, it would never make sense to pay for life insurance if you didn’t need it, but you may need it sooner than you think. If you have anyone who depends on you financially, there’s a good chance you have life insurance needs. You primarily want a death benefit to replace the deceased’s income if the time comes, so if you have children or own property with your spouse it’s probably a good idea. It’s often good to get a life insurance policy when you’re younger as well since they tend to cost much less for the same benefits. Of course, like with many insurance products, it can get complex, and there are plenty of things you should know.
Types of Life Insurance
Not all policies are equal, and life insurance companies can offer a few different types of insurance, though some are only for specific situations. These are the two main types of policies.
Term Life Insurance: Term life is the most common and is generally suitable for most people. A term life policy lasts for a set amount of years, and if the policyholder dies during that period, the insurance company provides the life insurance payout. The only decision you have to make with a term policy is the coverage amount and how long you want your term insurance to last. Term policies typically last for increments of five years, though you may be able to find shorter periods for higher premiums.
Whole Life Insurance: Also called permanent life insurance, a whole life policy never expires. Your monthly premiums stay the same throughout the policy, and you can get a rate of return on the cash value of the policy, which can make whole life plans more valuable for some. Whole life is the easiest way to buy life insurance, and you’ll have the advantage of lifetime coverage, but your premium payments will generally be higher.
Insurance for Specific Situations
There are also some less-common policy types that can be applied to certain situations as follows.
Mortgage Life Insurance: This is a policy that covers the amount remaining on your mortgage and pays that amount to your lender upon your death.
Credit Life Insurance: This works the same way as a mortgage policy, but it can be used to pay any kind of loan. Your bank may offer this option when you apply for a loan.
Accidental Death and Dismemberment: These policies only pay out benefits if you die in an accident, or in some cases, they’ll pay for loss of limbs, sight, or other permanent disabilities. These policies will not typically pay a death benefit for a suicide or an incident where the policyholder is deemed at fault.
Applying for Life Insurance
The application process for a policy is usually simple. The first step is to request accurate quotes online. Compare life insurance with iSelect to find the right policy for your needs. Next, you’ll want to speak with an insurance agent to ask any questions you may have about your policy and provide some basic information about your medical history. Medical conditions and other factors can affect your eligibility and rates, so it’s important to be honest here.
After this, you’ll fill out a formal application and schedule a time for a brief medical exam. The exam determines your eligibility for your desired plan and will set your rate. Lastly, your application will be reviewed and the company will assess your risk before finalizing your policy.