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Life insurance 101

No one really wants to think about life insurance. But if someone depends on you financially, it’s a topic you can’t avoid. Getting life insurance doesn’t have to be hard (or boring). We have some answers to common questions about life insurance so that you can make informed decisions about protecting your loved ones financially. 

There are many answers to the question of why is life insurance important. But by and large, the most important one is ensuring your family’s financial security and peace of mind.

Types of life insurance generally fall into two categories: term life insurance and permanent life insurance. Term life insurance Term life insurance provides protection for a specific period of time (the term). This is often 10, 20 or 30 years. Term life insurance makes sense when you need protection for a specific amount of time--for instance until your kid's graduate from college or your mortgage is paid off. Term life insurance typically offers the most amount of coverage for the lowest initial premium. This makes this type of life insurance policy a good choice for those on a tighter budget. Permanent life insurance Permanent life insurance provides lifelong protection for as long as you pay the premiums. It also accumulates cash value on a tax-deferred basis, which you can tap into to buy a home, supplement your retirement income, cover an emergency expense, and more. Because of these additional benefits, initial premiums are higher than what you’d pay for a term life insurance policy with the same amount of coverage You Might Want a Mix Depending on your circumstances and financial goals, sometimes a combination of term and permanent insurance is the answer

Life insurance covers virtually any type of living expense. Some common expenses include: Immediate Expenses Funeral and burial costs Uncovered medical expenses Mortgage or rent Car loans Credit card debt Taxes Estate settlement costs Ongoing Expenses: Food Housing Utilities Transportation Health care and insurance Continue a family business Future Expenses: College costs Retirement

The price of life insurance depends on four main factors: your age, your health, the type of policy, and how much coverage you buy. In general, you’ll pay less the younger and healthier you are. You also typically pay less for a term life policy than a permanent life policy. That said, don’t let your age or health status discourage you from considering life insurance. There are policies available for people of any age as well as those with high blood pressure, diabetes, and a smoking habit. (Just know that you’ll generally pay more for your policy if you’re in poor health and/or smoke.) Still, wondering the answer to the question of how much does life insurance cost? If so, here’s a working idea: A healthy 30-year-old can get a $250,000 20-year level term policy for just $13 a month. That means that if you purchase that policy and pay the $13 a month without fail, your loved ones would get $250,000 if you were to die at any point during those 20 years.

If someone depends on you financially, you are most likely someone who needs life insurance. Life insurance provides cash to your family or loved ones after your death. This cash, known as the death benefit, replaces your income and the many non-paid ways you support your household. Your family can use this cash to pay for expenses like funeral costs, a mortgage, college tuition and more. Just a few examples of people who often answer “yes” to the question of “Should I get life insurance?” include: Married or partnered couples Many partners find it difficult to make ends meet without the other earner’s income in the picture. Married or partnered couples with kids In addition to losing one partner’s income, the surviving parent may have to pay for childcare and more without the other parent around to pitch in. Single parents As the sole income earner for your family, you’ll want to think about how to replace your child’s only source of financial support. Stay-at-home parents From cooking meals to shuttling kids to school to helping with homework, stay-at-home parents perform many critical responsibilities that would be costly to outsource. Empty nesters Many surviving partners would not be able to maintain the lifestyle they worked so hard to achieve without life insurance. Retirees Depending on the size of your estate, your heirs could be hit with an estate-tax rate of up to 45%. Fortunately, cash from a life insurance policy gives heirs access to tax-free money to pay for immediate costs and more. Business owners Life insurance can help your business in many ways if you, a fellow owner or a key employee were to pass away

Good news: There are options if you’re initially denied life insurance. The first is to contact the company that denied you to see if there was a mistake on the life insurance application. If there was no mistake, find out the reason for the denial. Once you know, you can try working with an insurance agent that specializes in higher-risk applicants.