Life insurance has come a long way and evolved to meet modern needs. The earliest known policy was issued in the Royal Exchange, London in 1583. Then in modern times, at one point in 1706 the Amicable Society for Perpetual Assurance Office, was founded by William Talbot and Sir Thomas Allen. Based on life expectancy in the 18th century, some records show that you may not be able to purchase life insurance if you were in your late 40s to early 50s.
Today, even a 70-year-old can get life insurance depending on their health. But what is life insurance exactly, who is it for and how much is it, why is it looked at as an investment?
Generally, Life Insurance would be defined as a financial product designed to provide peace of mind by offering financial protection to your loved ones in the event of your death so they can cover expenses such as funeral costs, outstanding debts, and everyday living expenses. But there is more to life insurance policies and their benefits.
What are some general uses of life insurance?
a. Financial Security for Dependents: The most common use is to ensure that your dependents are financially secure after your passing. This can include covering daily living expenses, medical expenses, taxes, mortgage or rent, and education costs for children.
b. Debt Repayment: Life insurance can help pay off any outstanding debts, such as credit cards, personal loans, car loans, etc. It will prevent your dependents from being burdened by these financial obligations.
c. Funeral and Burial Costs: Even if it’s purchased for small amounts, it can cover the costs associated with your funeral and burial which sometimes could be significant depending on your culture, traditions, etc.
d. Estate Planning: Life insurance can be used as a tool for estate planning, helping to preserve your estate value and ensuring your dependents receive their inheritance without hefty tax burdens. (We highly recommend reading about taxes and capital gains after the passing of a parent or spouse)
Who should get life insurance?
a. Married couples, Partners, or Single Parents: To ensure your children or partner are taken care of financially if something happens to you. We live in a period of time where for most families, the cost of living falls on the shoulders of both parents/partners. It’s extremely important to make sure your partner or child can keep everything you worked so hard to achieve.
b. Individuals with Mortgage: To allow your partner or dependent to make mortgage payments and stay in the family home without being forced to downsize or move.
c. Debt with co-signers: To prevent your loved ones or business partners from being saddled with your outstanding debts in case their names are on the loans as well.
d. Business owners: To protect your business and ensure it can continue operating smoothly after your death. However, life insurance can also be used for key employees such as office managers business partners, and co-owners. You want the business to stay profitable and allow you time to look for another business partner or suitable employee.
General information and benefits
There are many types of life insurance policies, we’ll look at some of the common ones in this post and will provide a detailed description of each item in future blogs including but not limited to the options below.
a. Term Life Insurance
Term life insurance is simple and the most affordable insurance coverage you can find. These policies are set for a specific period of 5, 10, 15, 20, 25, 30 years or more (depending on the insurance provider) and they’re meant to provide protection for a specific reason or general financial protection for beneficiaries such as mortgages. It offers the most amount of coverage for the lowest initial premium. For individuals with a very small budget for life insurance, this is the best choice. Most often, these policies do not require a medical exam unless the underwriting department prefers to ask for it based on age, medical questionnaire, length of the term, etc. A non-smoker 30-year-old male can insure himself for $500,000 as low as $21 Per month. It’s important to monitor your living situation and your life policy every few years. Also, speak to a licensed professional as your needs may change every year.
b. Permanent Life Insurance:
Unlike Term Insurance, you receive financial protection for a lifetime, as long as your insurance policy remains in force. Similar to Term Insurance, there are many options in terms of payments, customizing coverage, cash values, dividends, and much more. In addition to being insured for life and depending on the type of policy you purchase, you may accumulate cash which you can withdraw to purchase a property, help with the kids’ education, plan retirement, emergency expenses, or reinvest. You may choose to take the cash at once or in small installments every year. These policies can be customized with fixed or variable monthly payments, guaranteed rate of return, or variable rate by choosing a particular investment component within the policy. Some will have increased death benefits, some will allow you to skip premium payments after certain years. Because of all these options, the monthly premiums are going to be higher if we compare it to the Term Life insurance for the same amount of coverage.
The Payout and beneficiary
It’s important to review your life insurance policy with a licensed professional every few years to see if there is a need to make changes. You may now be married, divorced, have a child or more, purchase a new property, cottage, etc. It’ll make it much easier if you have named your beneficiaries rather than the life insurance funds going to your estate.
Under personal policies, once the certified copy of the death certificate is sent to the insurance company, the beneficiary can expect a check within 5-6 business days to months depending on the company and age of death. If the policy owner is an incorporation, this time frame can be much longer due to legal and estate guidelines. In both scenarios the process can be complicated or a claim may be denied due to unusual circumstances surrounding the death of an insured such as homicide, illegal activities, etc. There are situations where policy premiums were not paid in time and cause the life insurance policy to collapse before the death of the insured. That’s why it’s always important to review the policy and make sure payments are being made.
