Life insurance is not something that most people want to think about, and it definitely brings down the mood at HotPads. But if we can get up the moxie to put together these great articles on the subject, you can dig deep and find the gusto to read them.
Let HotPads walk you through the ins and outs of life insurance.
Life Insurance 101
The two basic types of life insurance
To make a complicated matter more simple, there are two basic types of life insurance: term and whole life. Term life insurance is temporary, and offers less long-term security. In exchange, it is much less expensive. With term life you pay premiums to cover the risk of your death during the period (term) of the policy. If you pass away, your beneficiary will collect the policy's death benefit. The insurer can choose not to renew your policy at the end of the term, and your premiums will rise as you age.
Whole life insurance is permanent, in that it will remain in effect throughout your life as long as you pay the premiums. Your premium payments remain the same for the entire course of your life. These policies actually have a cash value which can be access by cashing out the policy or taking out a loan. For these reasons, whole life is more expensive than term.
Within these two basic product lines are lots of variations. One of the more popular is universal life which is different from regular whole life insurance in that the insurer breaks out the death benefit, cost and cash value. This allows you the ability to adjust the face value and premium payments during the course of the policy.
Why homebuyers need it
If you own a home or are buying a home, you're most likely going to be saddled with significant debt in the form of your mortgage. While you can leave your home to loved ones in the event of your passing, you won't be leaving them your income to pay the loan. A good life insurance policy will allow them to take care of your affairs and decide what to do with the home without having the pressure to sell.
It's huge peace of mind for anyone that depends on you for a roof over their heads.
How much do you need?
The main thing to understand about life insurance is that it is for the benefit of people other than yourself. You need to know what you goals and obligations are in relation to those you'll leave behind, and weight that against the assets you'll leave if you pass. In many cases, your assets are more than sufficient to take care of your concerns and no life insurance is needed.
To begin, you may want to plan to cover the expense of your funeral and administering your estate. Understand that even if your assets are sizable, it may take a while for your beneficiaries to get at that money. Insurance can provide much-needed emergency cash. For your dependents, have enough insurance to replace your income and pay for things like health insurance, education and housing. You may even wish to include legacy gifts to your college or church.
Since many couples enter the homebuying process together, it's also good to investigate coverage for both members. Individual polices can be purchased, or two people can purchase joint life insurance (a term or permanent policy the proceeds payable on the death of either member) or survivorship life, also called second-to-die life. This is a whole life policy where the proceeds are payable on the death of the second person.
Another type of whole life insurance is called burial insurance and is designed solely to cover the costs associated with a funeral and burial. The death benefit is small, usually less than $25,000. Due to the low payout, these policies are less expensive and do not require an intensive review of your health. This is a good supplemental policy for people who don't need a larger policy but want to provide immediate cash to cover these expenses.
More Life Insurance Resources
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