Life Insurance (FAQ)
This guide to life insurance explains everything you need to know about this highly important cover.
1.What is life insurance?
A life insurance policy is a contract between the policyholder and the insurer, wherein the latter promises to provide your beneficiaries with a sum of money upon your death, or pay off an existing mortgage. In return, you make periodic payments called premiums, which are based on factors such as your age, medical history and the kind of life insurance you purchase.
2.Do I actually need life insurance?
That depends. If you have nobody depending on your income, then you probably do not. If, however, you have a partner or family who may struggle financially if something were to happen to you, then life insurance could help them sustain their standard of living at an otherwise very difficult time. A life insurance policy may also be obligatory if you take out a house loan, so that in the event of your death the bank can be compensated.
3.How much coverage do I need?
That also depends on your circumstances. Your goal should be to develop a plan that will allow your family to live comfortably without your economic contribution. You might only want the policy to last until your mortgage is repaid. Perhaps you want to link it to your children’s age, so that it will not expire until they have become adults or finished university. Your own age will also have an impact on your decision.
4.How much does life insurance cost?
There is a variety of factors affecting the cost of your life insurance policy. Your premium will vary depending on the type of policy you choose, the sum insured and the risk of a claim - whether you have a dangerous job, for example. Age and health condition are also considered, as premiums go up for older people and those with poor health. To determine their premium, an insurer will take into account your occupation, your hobbies, and your lifestyle, like your weight and fitness levels, whether you smoke or if you participate in dangerous activities.
5.What kinds of life insurance are there?
Life insurance comes in two main types - term and permanent. Term life insurance pays a specific amount of money to your loved ones if you die within a pre-specified period of time - usually from one to twenty years. As this type of insurance only pays benefits if your death occurs during the period covered by the policy, it is more affordable. On the other hand, permanent life insurance policies do not expire. As long as you pay your premiums, they are designed to protect your loved ones permanently.
6.Can I still take out life insurance if I have a pre-existing condition?
In truth, it can be hard to find affordable life insurance if you suffer from a pre-existing condition, especially a serious one. Some insurers may refuse to insure you, while others may create an exclusion for the condition in the contract, meaning that if you die from that particular disease, the policy will not pay out. There are, however, some specialists who offer life insurance to those with pre-existing conditions, though you have to be prepared for higher premiums due to the higher risk of a claim.
7.How can I make the cost of life insurance more affordable?
First of all, buy it as early as you can. Premiums increase the older you get and the longer you wait, the more you risk developing a health condition that may also increase your premium. It is also usually cheaper for couples to take out joint life insurance, though it is worth noting that in such cases, joint life insurance only pays out once at the first death, and then leaves the surviving partner with no insurance. You may also consider group insurance if it is offered through your employer, since that may be available at a much lower cost, but you should keep in mind that group coverage may end or become more expensive as you get older or leave your job.
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