Life Insurance.

Yes, me too, and also apparently our president…But let’s take this one step by step. What is life insurance?

Life insurance is insurance you buy through the payment of premiums in exchange for a lump sum of money to be paid to your beneficiaries at the time of your death. It’s a legal contract between the insurance holder (you) and the life insurance provider (think MetLife). At the time of  the insurance holder’s death, the insurance provider pays the money to the assigned beneficiary(ies).

Yeah, that’s why no one likes to talk about it. But at Nav.it we believe in talking about reality no matter how unpleasant, so here we go:

Example: A wife pays for a life insurance policy through her employer and her beneficiaries are her husband and kid. She allocates how much goes to each of them and how the money is managed for her child if s/he is a minor. Upon her death, the insurance company pays the entire amount due to the husband and kid. There are taxes and other accounting issues with these policies but that’s for another blog.

The two important components to life insurance are the premium payments and the death benefit. Premium payments are the amount of money the insurance holder pays the insurance provider to keep the policy active. The premium cost is dependent on several factors such as age, lifestyle, gender, the amount of the death benefit. – it’s kind of like health insurance.

There are two types of life insurance:

1. Permanent insurance – this is coverage that is meant to cover you for as long as you are alive. This could be around $80 a month for $250,000 of coverage, if you are  healthy and haven’t had any major life threatening conditions.

            a. Whole life – this type of insurance is stagnant, You can pay a set amount and have it for as long as you live.

            b. Universal – this type of insurance is more flexible. You can change or adjust your benefits over time to better reflect your lifestyle, family situations, business situation, etc.

2. Term life insurance – term life insurance provides coverage for a specific amount of time. Term insurance is less expensive than permanent insurance. It could start at $15.00 a month for ten years of coverage. Lots of people buy term insurance because they want to cover the cost of their kids or beneficiaries’ lifestyle and education until they are old enough to provide for themselves. Once beneficiaries are older, the argument goes, the need for life insurance lessens (unless you want a partner or spouse to have it). There are a couple catches here. If you have term insurance and it expires, but you want to continue coverage, the insurance company can up your premiums (and they probably will, citing that you are older and therefore closer to the great unknown. I know, fun stuff but also a good way for them to make more mula). Also, some people in debt (student loans, business owners, etc) take out policies to cover their financial situation at the time of their death–ie to avoid co-signers on their debt having to foot the entire bill.

Where does it come from?

Most people sign up for life insurance through their employer. Before being able to purchase life insurance through, companies will have to decide your premium. FYI, they will do a full health check and review your medical records to determine your premiums. Feels like a full lobotomy? Check.

Image credit: Mirjana Jesic

 

 

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