Most Important Keywords That You Should Know When Buying Life Insurance
- Term Life Insurance
- The Beneficiary
- Death Taxes
- Cash Value
When an inexperienced buyer is paired with complex terms that surround life insurance policies, confusion is almost bound to take place. After all, there is a reason why countless colleges offer courses and seminars on this topic. So, what are some of the most important keywords that you should know when purchasing life insurance?
Term Life Insurance
“Term” life insurance is the type of policy that will last for a limited period of time. It is usually obtained by younger households. The opposite of a term policy would be a permanent one. The reason why recognizing the contrast here is crucial boils down to the fact that these two alternatives are completely different across every category. A term policy, for instance, comes with lower monthly payments, usually has no cash value, and builds up to an amount that you can take if you are still alive at the end of the period.
Premiums that you have on a life insurance policy of any kind will be your periodic payments that go to the provider. These are usually allocated on a monthly basis. In addition, most companies now offer autopay options that make it borderline impossible to skip a month. Your premiums will range depending on the type of policy that you sign up for. A general rule of thumb is that the more that you pay per month, the more the beneficiary will get upon your death. Numbers are also subject to change depending on your age, location, habits, and other demographics.
Although it is somewhat self-explanatory, many folks do not really know who the beneficiary is. Well, that will be the person that gets the entire value of the insurance policy upon your death. For instance, if you decide that all of the money should to go to your children, they will effectively become the beneficiaries of the policy. This also showcases how you can have more than just one person as the recipient. In fact, most parents who have multiple children tend to list them all. There are really no rules regarding who can be your beneficiary as long as they can be reached at all times.
One of the most common reasons why people obtain life insurance pertains to the so-called “death” taxes. Anyone who does not have a fair amount of knowledge in accounting, tax, finance, or other related fields will probably have no clue what these are. Is there an actual tax for dying? Of course not. The phrase “death taxes” relates to the estate tax that must be paid to the federal and certain states’ governments by the recipient of the inheritance. Fortunately, according to Investopedia, there are only 11 states that have their own estate taxes. As far as the federal level goes, only individuals who inherit assets going above $11.4 million will have to pay up to 40 percent.
Having the ability to use some of the funds is probably the most contradicting part of life insurance policies. After all, their purpose is to pay out a sum of money once the policyholder dies. Thus, how can that same person still get to use the money themselves? The answer relates to something known as the “cash value.” With most types of permanent policies, one’s premiums will slowly build up a cash value that gets put aside. Subsequently, they can decide to use that cash value whenever they want. Obviously, this means that the beneficiary will not be entitled to that money later on.
Related Resource: 10 Best Cheap Life Insurance Companies
The process of getting coverage is going to be very demanding. As such, it is extremely important that you do a lot of in-depth research and consider multiple providers. Not to mention that you should get familiar with all of the life insurance keywords mentioned above.