A Long, Healthy Life Includes Insurance, But Which Coverage is Right for You?

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No one wishes to dwell on thoughts such as the death of a loved one. But preparing for the worst ensures that you’ll have the right resources in place to financially support your family after your passing. While it is impossible to foresee what life will throw at you, policies such as life and critical illness insurance can help those you leave behind manage day-to-day expenses and cover burial and funeral expenses. 

But choosing the right protection for you and your family might not be as straightforward. The guide below can help you pinpoint the right type of coverage for your needs. 

Life Insurance at a Glance

Life insurance is a contract by which an insurance company agrees to pay a certain amount to pre-determined beneficiaries upon the death (or critical illness) of the insured party. 

The beneficiaries, who are usually family members of the insured who financially depend on his or her income or assets, can then use the payout (called death benefit) to cover funeral and burial expenses, fulfill outstanding debts, and afford living expenses. 

The death benefit can be paid out in the form of a fixed lump sum, recurring payouts, or annuity.

Do You Need Life Insurance? Here’s How To Determine the Right Policy for Your Needs

While comparing and choosing the best health insurance plan represents a priority for most households, life insurance is often seen as an optional investment. However, these policies can represent the ultimate safety net for you and your entire family. 

In particular, life insurance is recommended for those who have financial dependents (i.e.: children under 18 years of age), and don’t have enough money to cover existing debts or funeral expenses.

But, how can you determine the right level of coverage for your needs?

The rule of thumb is to multiply your annual salary by 10 or by the number of years left to retire. This sum can be used to replace your current income and other financial obligations towards your family. 

However, if you wish to provide financial resources to cover other significant expenses, you’ll need to factor in variables such as:

  • How many years’ worth of income you need to provide
  • How much your family will hear after your death
  • How much debt you have 
  • How the death benefit will be used by your family (i.e.: paying medical bills or mortgages)
  • How much money your family needs to cover expenses such as weddings and college tuition
  • Your current investments, assets, and finances

Types of Life Insurance Policies To Choose From

Once you have determined how much coverage you need, it is time to choose the right policy. Here are some of the most common ones, but don’t hesitate to consult a specialized advisor to find a policy better tailored to your financial and medical circumstances. 

Term Life Insurance

Term life insurance is essentially a policy that will only be valid for a certain length of time, which might vary between 10 and 30 years. The insurance policy will only pay out the death benefit if the death of the insured happens within this term. 

While term life insurance does not provide cash value, it can be extended in due course and, if you have a “convertible policy” it can be converted into whole life insurance.

Whole Life Insurance

Whole or permanent life insurance is a policy that will protect the insured throughout his or her life. Whole life insurance usually comes with higher premiums, but it provides cash value which can be returned to the insurer if you decide to surrender your policy, and it can represent an investment.

The two main types of whole life insurance include:

  • Set-premium life insurance
  • Universal life insurance with variable or flexible premiums

Critical Illness Insurance

If you are worried about a life-threatening condition that can throw your family’s finances off balance, you should consider learning about critical illness insurance plans and their benefits

The medical expenses associated with a critical illness or a catastrophic health emergency – such as a stroke or cancer – can bring your household to the edge of financial ruin. While health insurance might cover some of these expenses, these plans’ payouts might not be enough for your family to recoup financial stability. 

That’s where critical illness insurance comes in. This type of coverage is typically included in life insurance policies, or it can be added as a rider. 

Disability Insurance

According to recent statistics, over 51 million Americans lack disability insurance. However, of the 3 in 10 households that have recently experienced a disability, over 55% say that it has a catastrophic impact on their finances. 

What’s more, disability insurance isn’t normally included in a life insurance plan, which makes it particularly important for families to compare the different plans and add riders and add-ons as needed.

Accidental Death and Dismemberment (AD&D) Insurance

AD&D insurance is a type of life insurance that will provide a death benefit in the case of accidental death. AD&D policies are often more affordable than standard life insurance but offer limited death benefits. 

The main difference between life insurance and ad&d is in the circumstances that trigger the death benefit. While the former has an “all causes” benefit, AD&D will pay out only if the insurer suffered death, non-fatal injuries, the loss of a limb, or paralysis as a consequence of an accident. 

Guaranteed or Simplified Issue Insurance

According to statistics by the III, over 160 million adults don’t have adequate life insurance coverage, which has caused the need gap to increase twofold in just 12 years. And, one of the main reasons behind this crisis is the fact that many older adults or people with pre-existing medical conditions aren’t eligible for a life insurance policy. 

Luckily, you can get around this roadblock by choosing guaranteed or simplified issue insurance. These policies often come with higher premiums and lower benefits, but they don’t require underwriting or passing medical exams, which makes them more accessible to people that wouldn’t otherwise qualify. 

Group Life Insurance

Since an estimated 60% of private-sector business owners provide life insurance to their employees, it is worth looking into the group plans offered by your employer. 

However, since you might lose your benefits and cash value if your circumstances change, consider investing in supplemental health insurance or invest in add-ons to cover your spouse or family. 

Consult a Specialized Advisor

Navigating the universe of health and life insurance policies is all but easy. 

If you are unsure about the best plan for your needs, compare different types of coverage and speak to a specialized advisor to ensure that your loved ones will benefit from uninterrupted financial protection.

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