Setting Up Your Free Life Insurance: Easy Steps To Follow

Life insurance is a contract between an insurance company and a policyholder, where the insurer guarantees to pay a sum of money to the policyholder's beneficiaries when the insured person dies. The policyholder pays premiums to the insurer during their lifetime, and the amount of these premiums depends on several factors, such as age, medical history, and lifestyle. There are two main types of life insurance policies: term life insurance and permanent life insurance. Term life insurance covers a specific time period, usually 10 or 20 years, and provides financial help to the beneficiary in the event of the insured person's death. Permanent life insurance, on the other hand, lasts for the entire lifetime of the insured person and typically includes a cash value component. When setting up life insurance, it is important to consider your financial obligations, dependents' needs, and long-term goals to ensure that your loved ones are financially secure in the event of your passing.

How much life insurance do I need?

The amount of life insurance you need depends on your financial situation and goals. A good rule of thumb is to ensure your life insurance covers your long-term financial obligations.

Add up your financial obligations:

• Multiply your annual salary by the number of years you want to replace that income.
• Include any large debts, such as your mortgage balance.
• Consider future expenses, such as college tuition for your children or funeral costs.
• If you are a stay-at-home parent, calculate the cost of replacing the services you provide, such as childcare.

Subtract your liquid assets:

• Savings accounts
• Existing college funds
• Current life insurance policies

The number you are left with is the amount of life insurance coverage you need.

There are also online life insurance calculators that can help you refine your estimate. These calculators take into account factors such as your age, health, lifestyle, and income level.

It's important to review your life insurance policy periodically, especially after significant life events such as marriage, the birth of a child, or a change in your financial situation.

Different Types of Life Insurance:

There are two main types of life insurance: term life insurance and permanent life insurance.

Term Life Insurance:

• Covers a specific time period, such as 10 or 20 years.
• Provides financial help to the beneficiary, often to replace lost income due to the death of the insured.
• May be eligible for a No-Med Exam, which replaces a medical exam with a detailed questionnaire.

Permanent Life Insurance:

• Covers your lifetime.
• Offers an optional fund that you can contribute to, which can build over time.
• May include a cash value component that you can borrow against or use as collateral for a loan.

Permanent life insurance includes whole life insurance and universal life insurance.

Whole Life Insurance:

• Covers your entire life.
• Premiums remain the same as you get older.
• Often includes a guaranteed minimum cash value.
• Allows you to access additional funds during your lifetime.

Universal Life Insurance:

• Covers your lifetime.
• Combines life insurance with an investment account, allowing you to build wealth for your beneficiaries.
• Includes a cash value component that allows withdrawals and loans.
• The death benefit and cash value may increase or decrease depending on the types of investments and the returns on those investments.

Most people buy life insurance to provide financial support to their loved ones after their death. Life insurance can help replace lost income, cover mortgage payments, fund children's education, and pay for funeral expenses.

It's important to consider your unique financial situation and goals when determining how much life insurance you need.

What type of life insurance is best for me?

The best type of life insurance for you will depend on your personal circumstances, such as your financial situation, age, health, and the needs of your dependents. Here is an overview of the different types of life insurance and how they can meet your needs.

Term Life Insurance

Term life insurance is a simple and low-cost policy that covers a specific time period, typically 10, 15, 20, or 30 years. It is designed to replace your income in the event of your death during the policy term. Term life insurance is generally the cheapest option and is sufficient for most people. However, if you outlive the policy, your beneficiaries will not receive a payout.

Whole Life Insurance

Whole life insurance is a permanent coverage type that lasts your entire life. It is more expensive than term life insurance but offers more secure benefits in the long run. Whole life insurance is ideal if you want guaranteed support for your loved ones and want to include it in your long-term financial planning. Whole life insurance policies usually have a guaranteed minimum cash value, and the premiums remain the same throughout the policy.

Universal Life Insurance

Universal life insurance is a type of permanent coverage that combines life insurance with an investment account. It offers flexibility, as you can adjust the premium payments and benefit value over time. The cash value of the policy grows based on market interest rates, and you can withdraw or borrow against it. However, the death benefit and cash value growth are not guaranteed and may fluctuate.

Variable Life Insurance

Variable life insurance is a type of permanent coverage where the cash value is tied to investment accounts such as bonds and mutual funds. It offers the potential for considerable gains if your investments perform well. However, it requires active management as the cash value can change daily based on market performance. Variable universal life insurance offers adjustable premiums, allowing you to pay more or less each month.

Final Expense/Burial Insurance

Final expense insurance, also known as burial insurance, is a type of permanent coverage with a small death benefit, typically ranging from $5,000 to $25,000. It is designed to cover funeral, burial, and other end-of-life expenses. A medical exam is usually not required, making it accessible to seniors with pre-existing health conditions.

Group Life Insurance

Group life insurance is typically offered by employers as part of their benefits package. It provides basic coverage for employees, with the option to purchase supplemental life insurance if needed.

When choosing a life insurance policy, consider your budget for premium payments, the level of coverage you require, and the importance of cash benefits. Additionally, assess your health, age, financial obligations, and the needs of your dependents.

How much does life insurance cost?

The cost of life insurance depends on several factors, including age, gender, health, lifestyle, and the coverage amount and policy type. Generally, the younger and healthier you are, the lower your premiums will be. Let's take a closer look at these factors and how they influence the cost of life insurance.

Age and Gender

Age and gender are significant determinants of life insurance rates. Younger individuals typically pay less for life insurance than older people because they are less likely to have health problems. Additionally, men tend to have shorter lifespans and engage in riskier jobs or lifestyles, making them more expensive to insure. As a result, life insurance rates for men are generally higher than those for women of the same age.

Health and Lifestyle

Insurers evaluate your health by considering your height, weight, medical history, and any pre-existing conditions. Chronic or serious illnesses can increase your premiums. Lifestyle choices, such as smoking or engaging in risky activities like skydiving, can also impact your rates. Smokers, for instance, often face higher rates due to the numerous health risks associated with smoking.

Coverage Amount and Policy Type

The amount of coverage you choose will affect your premium. The higher the coverage amount, the more you will pay for life insurance. Additionally, the type of policy you select matters. Term life insurance, which covers a specific time period, is generally more affordable than permanent life insurance, which lasts for the insured's lifetime and includes a cash value component.

Other Factors

Other factors that can influence your life insurance rates include your occupation, financial history, and driving record. Riskier jobs, such as police officers or firefighters, may result in higher premiums. Bankruptcies or long periods of unemployment reflected in your credit history may also impact your rates. Additionally, a poor driving record with DUIs or major traffic violations can lead to higher premiums or even disqualification from coverage with certain insurers.

What are the benefits of life insurance?

Life insurance is a contract between an insurance company and a policyholder, where the insurer guarantees to pay a sum of money to one or more named beneficiaries when the insured person dies. The policyholder pays premiums to the insurer during their lifetime.

There are many benefits to having life insurance. Here are some of the most important ones:

Financial Security for Loved Ones

Life insurance helps your loved ones deal with the financial impact of your death by providing them with a one-time, tax-free payment, known as a death benefit. This money can be used to replace lost income, cover expenses, and maintain their standard of living. It can also help pay for funeral costs and provide for children or other dependents.

Peace of Mind

Life insurance provides peace of mind, knowing that your loved ones will be financially secure in the event of your death. It ensures that your family's financial obligations, such as mortgage payments, educational expenses, and daily living costs, are taken care of.

Tax-Free Payouts

The death benefit from a life insurance policy is usually tax-free and is paid as a lump sum to the beneficiaries. This means your loved ones will receive the full amount without having to worry about tax implications.

Coverage for Final Expenses

Life insurance can cover final expenses, such as funeral and burial costs, medical bills, and estate settlement costs. This relieves the financial burden on your loved ones during an already difficult time.

Income Replacement

Life insurance can help replace the income you provide for your family if you were to pass away. This can help them afford childcare, healthcare, and other essential services, as well as cover tuition and other college expenses.

Supplemental Retirement Savings

Certain types of life insurance policies, such as whole, universal, or variable life insurance, can accumulate cash value over time. This cash value can supplement your retirement savings and be used to cover expenses or provide additional income during retirement.

How do I buy life insurance?

Life insurance is a contract in which a policyholder pays premiums in exchange for a lump-sum death benefit that is paid to the policyholder's beneficiaries when the policyholder passes away. The purpose of life insurance is to provide financial security and peace of mind for your loved ones when they need it most.

Decide if you need life insurance

Ask yourself if your family or beneficiaries would face financial hardships if they lost your income, or if your dependents would be left with a large amount of debt after your death. You may also want to consider if you want to cover end-of-life expenses, including funeral, burial, or medical costs, or if you want to pay for a dependent's tuition, day-care, or retirement costs.

Determine how much life insurance you need

The amount of life insurance you need depends on various factors, including your personal and household income, the needs of your dependents or prospective beneficiaries, and your financial goals. Consider how the loss of your income will affect your dependents, how long you would like your income to provide financial support for your beneficiary, and how much your dependents or spouse will need to cover the mortgage or rent, as well as day-to-day expenses.

Determine which type of life insurance is right for you

There are two primary types of life insurance to choose from: term life, which covers a specific time period, usually between 10 and 30 years, and permanent life, which covers you for as long as you live. Term life insurance is typically more affordable, while permanent life insurance is more expensive and often has the added benefit of a cash value component.

Decide if you need life insurance riders

Riders are additional benefits or options that you can add to your policy to meet your specific needs. Common types of riders include the Children's Term Rider, Accelerated Death Benefit Rider, Accidental Death Benefit Rider, and Waiver of Premium Rider.

Choose a life insurance company

You can work with an insurance agent, insurance broker, or directly with an insurance company. An insurance agent represents a single insurance company or multiple companies, while a broker acts as the middleman between the client and the insurance market. Be sure to review the company's ratings, get reviews and referrals, and shop around to compare insurance companies, policies, and premiums.

Purchase your policy

Complete the life insurance application, either online or by filling out a physical form, and undergo a medical exam or screening if required by the policy. Choose your beneficiary, which is the individual or entity that will receive the policy's death benefit once you die, and finalise your policy.

Free life insurance benefits

Some employers offer basic group life insurance as part of their benefits package. This is usually a supplemental insurance that provides additional coverage on top of a primary insurance policy. It is important to review the coverage offered by these policies to determine if additional coverage is needed.

Frequently asked questions