Life insurance 101

 

Life insurance 101

All the basics that you need to know about life insurance, we'll run through about it in this article including what are the policies that need to be adhere? And how you can prepare for you to get one? Disclaimer: I have work with an insurance company before for short period of time but in terms of basic knowledge I would be able to suffice the concern about life insurance although I am not selling any products or policy.

We are breaking down why we need protection as well as what is life insurance. We will also be tackling about the difference between life insurance and health insurance, same thing with different terminologies types of life insurance, and the best time you should get life insurance and then how you could apply for one, requirements you will need and what you should do after you get one.

First, is why do we need this type of protection? As completely humans we can experience sickness, accident and death or disabilities and since a lot of people don’t have a life insurance what we tend to do is utilize our life savings, sell our assets or possessions and sometimes borrow money or applying for a loan and if someone has no access from these, worst comes to worst.

 

Now that’s where life insurance extend its helping hand in this type of crisis. Life insurance is a financial tool that provides and support family of an insured person in case of extenuating circumstances. I have known a lot of people being skeptical about insurance in general, and I totally understand where they're coming from, you’re giving a small amount every year or every quarter "but" beyond their conscious they are getting thousands and millions in return in a long run, aside from protection covered by life insurance, sometimes there is good reason about being skeptic and like I said its totally fine as long as you find the benefit of the doubt after learning about insurance at the end of the day.

 

How does life insurance works? Well, basically you as an insured pay a premium amount of funds every year or by quarter to a life insurance company similar to the banks that doesn’t stay stagnant, eventually it will be utilize for investment as well. Now, that's depending on how aggressive you are as an investor and yes you can balance it without jeopardizing your life protection coverage especially on those times when you or your family needed the security.

Now let’s talk about what life insurance are for, first is breadwinners especially those with dependents. it’s very common for us 20's to 30's to be a breadwinners and you’re the only one with good financial state then something bad happen to you and your family will definitely suffer that's why life insurance is very important when you’re mainly the only one earning for the family, it will serve as an income replacement when let’s say you’re no longer around when they need to get up on their feet and maybe find another source of income at least they have the life insurance that could cover them for a couple of years.

 

However if you are someone who doesn’t have any beneficiary you might be interested focusing in health insurance more than life insurance, but you also have to consider if you are planning to have a family in the future. So what can a life insurance and its rider covers? It covers death, accidents permanent disability and it also covers critical illnesses and more.

Critical illness would cover cancer, stroke, and heart attack. Every life insurance company usually offers different but very similar coverage when it comes to critical illness. You might be confuse about what's the difference between a life insurance and a health insurance basically health insurance is usually for the insured, its normally covers hospital bills, medical bills, checkups, doctors fee and etc. the life insurance on the other hand covers not the insured but the beneficiary of the insured these are the children the spouse, partner or the parents of the insured and practically it’s for income replacement cash flow because it’s done through a lump sum amount.

Now let’s go to insurance policy, is basically a contract between insurance companies the insurer and the insured. The beneficiary is technically be stipulated in the policy who would receive the money in case of your demise, they can’t be just random person you have to have a relationship to them either family, a close relative, or you have economic relations with them and if you are part of the LGBT community you can actually designate your life partner.

Next is coverage, is the amount also called sum insured, basically the amount of money that you will be leaving to your family. Premium is the amount you pay to the insurance yearly. Riders, when you get a life insurance it usually only covers a death benefit but you can add on different illness coverage I mention above with insurance rider so that you can further protect yourself.

 

Let’s talk about the type of life insurances. Let us know the term Life insurance, solely a life insurance are not link to any type of investment or fund but because of that its typically the cheapest form of insurance, the term can be a short of one year to twenty to thirty year or so the thing there, if you did not renew your term life insurance on time you might not be covered anymore, so this is great if you have just started working, you haven’t save up a lot because your family can still covered and you can be insured for a very minimum cost.

So next is for the permanent insurance and under two kind, Whole life and VUL or Variable Universal Life, so the Whole life insurance it covers usually the insured up to 99 or 100 years old and you can actually loan from yourself, you can loan from the policy if ever you need the cash, the difference between the two is basically is that VUL is linked to an investment, so technically the term life insurance doesn’t have cash value, Whole life insurance has a cash value and the VUL has a fund value so its growing.

The VUL is one of the most common types of insurance right now because a lot of people like it for a fact that it is link to an investment and it becomes a form of savings. We are down with term life and the permanent life insurance, now Lets discuss about endowment. The bonds of insurance it’s a risk free guaranteed small return as long as we make the monthly payment and the typical maturity are running around 10, 15, 20 or 30 years or upon death right now it’s not really popular anymore since most of the time, insured prefer VUL if they can’t take too much risk anymore, so if you’re on your later year in your life then endowment is going to be a great option for you.

 

Okay so when is the best time to get a life insurance. You need to have a stable source of income first especially because there’s a payment every year and preferably you would already have at least 4 months of emergency funds just in case in times of financial loss etc. your payment for your insurance won’t be interrupted and I highly recommend you to buy insurance as early as possible because they are much cheaper when you are younger. Ultimately, you are much healthier. When you are at your 50's 60's 70's insurance is probably much expensive than having it in early age especially if you have medical history or you had operations and illnesses before then it would definitely affect the price of your insurance premium

How can I get my life insurance? First is to have a financial advisor if you don’t personally know anyone, there are a lot financial advisors online or you can approach companies in your area or you can email them as well as getting into their portals and request for a financial advisor to reach out to you.

Now let’s talk about requirements. For a lot of company they will allow you to own a life insurance at your legal age and sometimes it varies from different companies other requirement would include filling up application form and your financial advisor will help you furnishing those important details, valid id's and some other documents and lastly the payment in some policies but depending in your situation is, you might need to undergo medical exams. A lot of insurance company don’t require this anymore unless necessary. The reason you might undergo medical as well is if you have medical history and this could also dictate the price of your policy.

Lastly, what are the things that you need to do when you get your life insurance, First thing, is you have to safe keep you policy, your beneficiaries wouldn’t necessarily need this if they want to claim for the insurance, but you will need this when you’re paying your premium or when you’re checking how much premium you’ve paid, or what are the coverage of your life insurance, so that you can review that in the future. Next thing is to discuss the coverage to your beneficiaries and all the things that they needed to know.

If you feel unsecure with what is happening now it’s best to think ahead and be secured.