Life insurance is a type of insurance that covers your finances after your premature death. It is usually contract based on you-the insurer and the insurance company. The named beneficiaries are the ones that receive the proceeds upon your death
We may need to explain some of the industry lingo, which Freedom Life Insurance breaks down. For example, policy- this is the amount of money that is in the contract agreement that you will be paying the specified amount of duration of your contract. The other one is the death benefit. The benefit is the total amount of money your beneficiary will receive upon your death.
There are two different main types of Freedom Life Insurance: the temporary and the permanent life insurance.
Temporary-This is also called the term insurance. This is because the contract has an expiry date. If you pass on after the term has expired, you don’t receive the death benefit. It is usually at an affordable cost.
Under this, there are two types of insurance.
Level term insurance- here you will pay the same premium rate each year. If death occurs in between the term, your beneficiaries receive the death benefit, if death occurs after the term, they receive nothing. If the term is up and you are still alive, you stop paying the premium, and you no longer have a coverage unless you renew the contract.
Convertible life insurance- as the name suggests, the convertible term insurance, can be converted into whole policy without one going back for medical examination. It is usually up to a specific age of say 65-70 years.
Permanent-This has no expiry date on the contract hence the name permanent. This one is set to receive the death benefit after death occurs. This insurance is at a higher price than the term insurance. What happens in permanent coverage that makes it more expensive is the cash value. For the first few years of your policy, the premiums that you pay becomes the cash value.
One can get a loan for the variety of reasons, say paying for a child’s school fees or other emergencies that may occur. If you die before paying the mortgage, the money will be removed from the death benefit your beneficiary is set to receive upon your death. If you do not take any loan, it is not a guarantee that the cash accumulated will be added to the benefit. Most of the times it goes to pay commission to the insurance company.
There are two main types of permanent insurance policy.
1. Whole life insurance policy- the premium is locked in this kind of plan. It proves very helpful for those on a strict budget. If you buy this type of permanent policy at a young age, the premium will remain the same as you grow older. Your contract will not be affected by either age or your health.
2. Universal life insurance policy- this is more flexible than the whole life because the insurer can choose the amount of money that goes to the death benefit and that which goes to the cash value.
See some examples on Health Depot Association‘s Freedom Life Insurance page.
What goes into choosing a life policy?
There is a few thing to consider before you decide on what type of life insurance you want
1. What is your budget?
As mentioned earlier, if you are looking for a cheaper policy, go for the term policy. Most people will advise you to buy the term policy and invest the difference’. What this means is that, instead of buying the permanent policy which is expensive, buy the term one and the difference between the two policies, and use that money to invest in something that will be inherited by the beneficiary.
If money is not the problem, go for the permanent policy. Most wealthy people tend to choose this to make sure the beneficiary do not inherit estate taxes
2. What is your life status?
Are you married? Do you have kids? Are your kids dependent on you? If the answers to this questions is a yes, you should probably consider having a (term) life insurance policy. If you have kids, you can take a term insurance of say 20 at this point assuming your last born child is independent. This is why. Let us consider your child is 2 years by the time you buy the policy, hoping that by the age of 22 maximum she/he will be independent.
If you are to die before the term is up at say the 10th year, your child will be 12years and will receive the death benefit of the remaining 10years until he/she turns 22 years of age and becomes independent. If you die after the term is up, that is 20 years later, and your child will be 22years of age (independent), so even though he/she will not receive the benefit, they can fend for themselves
If you answered no, meaning you are either not married or have no kids, you do not necessarily need any insurance especially if you and your spouse have the same earning capabilities
3. How much do you need?
If you have children depending on you, you have to determine how long they have to live until the can fend for themselves. The younger they are, the more you need and the older they are, the less you will need. If you have no children or they are already independent, do you have a retirement plan which will support your spouse if death occurs? To determine how much you need, you will take the total amount of money you have, add the liabilities and subtract your assets.
This could be a complicated process, and that is why you need a financial advisor who will also advise you on the company that have the best terms and policy and have been in the business longer. This contributes a lot to your final decision.
After all, is said and done, you can visit the selectquote.com. They help compare insurance plans and cost. You choose what suits you best, apply and undergo a medical exam (this is a requirement for most policies. It is because some insurance company are afraid of taking the risk of older people.
If you are of say 85 and above of age- this is apparently an estimate since each group has its range- they put into consideration of the future medical problems that may arise due to the age. Another reason that this happens is that if you have a chronic disease say cancer, you may either not get covered at all or be limited to the term life insurance policy) after the medical exam there is the underwriting process and there you go.
Do not be afraid of mistakes, the right thing with insurance is that you can always add another cover when the need arises.