Life insurance is an agreement between you and an insurance company. You agree to pay a premium, and the insurance company is required to compensate your beneficiaries when you pass on. The beneficiaries are named in the policy, and they receive the policy’s face value and or death benefit. Term life insurance policies typically expire after a certain period, while permanent life insurance policies stay in force until the policyholder passes away, evades payments, or cancels the policy.
Buying a life insurance policy is a smart investment that cushions your beneficiaries after you pass on. The amount of life insurance that is best for you depends mostly on your financial situation, but it should provide substantial relief to your beneficiaries. Generally, you need enough life insurance to meet your financial responsibilities and pay outstanding debts.
You need to take your time choosing an insurance company to ensure that you get the best policy terms. San Angelo Pronto Insurance offers excellent life insurance policies. You can visit their website for additional information about San Angelo Pronto Insurance.
Why People Buy Life Insurance
The financial circumstances of one person vary from one person to another. And so, people invest in life insurance for different reasons. The following are some of the areas where life insurance policy really helps:
· Covering funeral expenses
· Increasing retirement income
· Paying off mortgages
· Replacing lost income
· Paying college expenses
· Business investments
You particularly need to invest in life insurance if you’re the breadwinner. According to a LIMRA survey, 44% of households experience financial difficulties within six months if the breadwinner passes on prematurely, and 28% of households face hardship within a month.
Things to Consider When Choosing the Amount of Life Insurance Cover You Need
You can use different methods to work out the amount of life insurance that is perfect for you, and if you experience difficulties, you can enlist the help of a professional. The following are some of the factors that you need to consider.
1. Your Current Yearly Income
Your annual income is the first thing you need to consider when deciding your life insurance coverage. Previously, the rule of the thumb had been opting for coverage 10 times your income, but current inflation and the skyrocketing living costs necessitate opting for at least 20 times your income.
2. Current and Future Financial Liabilities
If you pass on and leave behind massive outstanding debts, you might leave your family in a pretty bad spot, especially if you were the breadwinner. If you are laden with hefty financial liabilities, you may want to consider the value of your assets when calculating your required coverage. If you have assets like stocks or mutual funds, they could help reduce these liabilities.
3. Your Age
Your age has a prominent role in determining the life insurance policy that is best for you. If you’re on the young side, you can select varied options. Also, different needs are determined by your stage in life. For instance, if you’re almost retiring, your kids are probably adults, and they won’t be saddled with expenses like college fees.
4. Health Status
Life insurance policy requires that you undergo a physical exam and answer medical questions to determine your health status. The healthier you are found to be, the less expensive your life insurance policy. Lifestyle habits like cigarette use and consumption of drugs can drive up the cost of the insurance policy.
5. Duration of Coverage
For how long will you need the policy? Do you need it for a certain period, or permanently? You need to sift through your situation before deciding whether to have time limits or not.
6. Everyday Living Expenses
You also need to keep in mind your everyday living expenses when working out the life insurance you need. This includes the costs associated with groceries, eating out, housing costs, and other bills.
Who Should Buy Life Insurance?
Life insurance guarantees that once the policyholder passes on, their beneficiaries will be awarded compensation. The following are categories of people that most need life insurance:
· Parents: parents are the breadwinners in a family, and if they pass on prematurely, the children would be left in a desperate position. Life insurance would provide kids with financial resources.
· Parents with special needs adult children: the life insurance enables the special needs children to be self-sufficient even after their parents pass on.
· Elderly parents who want to reward their adult children: many adult children care for their elderly parents. Buying life insurance ensures that adult children are compensated once their parents pass on.