When you consider your financial plan, you probably think about savings, debts and investments. But if that’s where your list ends, a critical piece may be missing from your personal financial portfolio — life insurance.
This important safeguard can be seen as an investment for your family. Just as you might go to college and receive training to earn more money over time and then borrow against those earnings to get a mortgage or a car loan, life insurance hedges your potential future earnings for your beneficiaries in the event of your death.
But even if you understand the value of having a policy in place, you may still feel overwhelmed or have questions about the particulars. We’ve gathered answers to the most common inquiries to help give you a strong start with this crucial component of your financial plan.
How Does Life Insurance Work?
At its core, life insurance is a contract between you and an insurer that delivers a tax-free payment to your loved ones after you die. Like other forms of insurance, you pay a regular premium, and in exchange, the provider gives a payout to your beneficiaries (family, friends, charities) when a claim is made.
What Are the Different Types of Life Insurance?
The two main types of life insurance are term and whole life insurance. Term life insurance is in place for a set period of time – generally between 10 and 30 years. Whole life insurance, on the other hand, is in effect for the duration of your life.
When Should I Buy Life Insurance?
The best time to buy life insurance is as soon as possible. Your premiums increase as you age, so it makes financial sense to purchase a policy when you’re younger.
What Is the Average Cost of Life Insurance?
A number of factors impact the cost of life insurance, including your age, sex, health status and lifestyle as well as the coverage type and amount of your policy. However, typically it costs roughly the same as most phone plans.
How Much Life Insurance Should You Have?
The amount of coverage you need depends on your stage in life, goals and budget. A common guideline might be to purchase a policy worth 10 times your income, but you may need significantly more. To determine the size of the policy right for you, consider your overall debts, savings and current income.
Is Life Insurance Through Work Enough?
While many people assume life insurance offered through their employer is sufficient, these types of policies typically cover approximately one to two times your annual salary or cap out at a low fixed amount. For most people, this will not be enough. You should still take advantage of workplace-sponsored coverage but, be sure to consider your goals thoroughly and supplement if needed.
How Often Should I Review My Life Insurance?
As you progress through life, your policy needs may shift as well. To stay on track, you should review your policy on an annual basis. And remember to reassess your policy when major life events happen, including marriage or divorce, a new child or grandchild, significant health changes, a new home purchase or an inheritance.
How Long Does It Take to Get Life Insurance Money?
The payout from a life insurance policy (also known as the death benefit) goes to your beneficiaries when you die. When you pass away, a claim is made, and it can take between two weeks and two months for them to receive the money. Your insurer will likely ask for information and documents to process the claim, such as a copy of the death certificate, a claim form and proof of your identity. Some factors that may delay a payout include fraud, policy lapses or certain causes of death.
How Do I Get Life Insurance?
You can buy life insurance online or in-person through a broker or agent. Most policies require a medical exam to be approved for coverage, but there are no-exam options as well.
Make Life Insurance Part of Your Financial Plans
A strong financial future for you and your family has many ingredients. In addition to saving for a rainy day, planning for retirement and investing, life insurance should be a key part of your overall financial plan. When planning for your financial future, adding life insurance to your plan helps to ensure your family is covered after your death.
If you’re ready to get started, Ally is working with Ladder to bring you an innovative approach to term life insurance with an easy online application process and a variety of coverage options to fit a wide range of needs.
Disclosure: Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers – for further details see www.ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.