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Life insurance is not the most pleasant topic to think about, but when you die, your family may be relieved and you have taken out a policy.
What is life insurance?
A life insurance policy is a contract with an insurance company. In exchange for regular premiums paid over time, life insurance pays after your death to the persons designated as beneficiaries – usually children, spouse or other family members. It is an important safety net if someone is financially dependent on you. Payment of life insurance can pay off debts like a mortgage, replace income, and provide funds for tuition fees.
Types of life insurance
Term life insurance covers a limited period of time, such as 10, 20 or 30 years, and does not create cash value. If you die within the deadline, your beneficiaries receive payment.
»OTHER: What to do when the life insurance term expires
Permanent life insurance costs more than the term but offers additional features such as the cash value that you can borrow and grow over time. Whole life is the best known form of permanent life insurance. Other types include universal, variable and universal variable.
»OTHER: Types of life insurance
Comparison of types of life insurance
Who needs life insurance?
NerdWallet recommends life insurance for anyone with loved ones who depend on them financially. This includes parents, homeowners with a mortgage, entrepreneurs and others.
For many people the best option is life insurance, which lasts for a limited time. Others may need permanent insurance, which does not expire until premiums are paid.
Term life is sufficient for most families. It costs less than your whole life and you can choose a term that matches the years when people depend on you financially. At the end of the period, you may no longer need life insurance: your house will be paid for, your children will grow up and you will have some money in the bank.
However, full life insurance and other forms of permanent coverage can be useful in some situations.
»OTHER: The differences between the term and the whole life insurance
»OTHER: How to find the best whole life insurance policy
How to buy life insurance
Life insurance is not a purchase you make often, so you may not know where to start or how to get life insurance quotes. Here's how to get the coverage you need.
Determine how much life insurance is needed
The amount of life insurance you need depends on your family's needs and priorities. Do you have debts to pay? Will your family have to replace your income to meet daily expenses? Do you want to finance a university education for your children?
Although you may have some life insurance during your job, it is generally a good idea to have your policy in addition to the coverage provided by your employer. The policy through your employer is probably not enough to meet your family's financial needs and typically ends if you quit your job.
Debt and income replacement calculators can help you decide how much coverage you need before getting life insurance quotes. Here is a calculator to get started. You can find more here: how much life insurance do i need?
Evaluate life insurance companies
Life insurance is a long term purchase and you want a company that can pay for claims for many years in the future. The largest life insurance companies have long experience, but some small insurers are also solid contenders. Discover the financial strength of insurers through rating agencies such as A.M. Better or Standard and Poor. NerdWallet recommends avoiding insurers with an A.M. Better rating of B or lower if possible.
NerdWallet's ranking of the best life insurance companies also offers points for companies that have higher customer satisfaction scores and fewer complaints to state regulators.
Not all companies sell the same types of policies and some focus on certain types, such as life insurance policies for children. Limit your choices by generally knowing the type of coverage you want before you start comparing life insurance quotes.
»MORE: NerdWallet Life Insurance Reviews
Collect the information you need
When you apply for life insurance, you need to have some documents handy. You will likely need to provide information about your current and past health conditions and your family health history. The insurer may need your consent to obtain medical records and ask you to take a life insurance medical exam. Insurers also check other data sources to determine term life insurance quotes, such as the MIB Group, which collects data on medical conditions, your resume, and dangerous hobbies.
You will need to choose the beneficiaries, who will receive payment when you die. Make sure you have their social security numbers and birth dates.
You may also need to answer questions about criminal convictions and driving violations such as a suspended driving license or DUI, particularly if they have occurred in recent years.
»OTHER: What you need to request for term life insurance
Compare life insurance quotes
The best way to save on life insurance is to compare all the options. To make sure you find the best rate for you, compare the life insurance quotes from different companies. Prices can vary widely, depending on the type of coverage chosen and personal factors such as age, gender and health.
To give you a rough idea of what to expect, here is a look at the average annual life insurance rates for men and women of different ages and for different policy lengths.
»MORE: 5 smart hacks for buying life insurance
If you can, apply when you are healthy
Life insurance companies use life expectancy as a basis for determining rates. Anything that can shorten life expectancy could lead to a higher price. Your age, gender, medical conditions and family health history are all taken into consideration.
So it is smart to buy life insurance as soon as possible when you are young and healthy. If you wait, life insurance quotes will only increase because of your age. If new health problems arise, your rates may increase even more.
But if you already have a health problem, don't let it stop you from getting life insurance quotes. Insurance companies vary in the way they view pre-existing conditions and some types of life insurance do not require a medical examination.
»OTHER: How to get life insurance in case of medical conditions
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