What is Life Insurance? How does it work?

Ever found yourself asking what is life insurance? How does it work? Today we will answer that and more.

Purchasing life insurance is not something you tend to do for yourself. You get life insurance for the ones that you love. It is true that money is not going to make them feel any less emotion if the worst were to happen, but struggling financially sure will make it more difficult.

So while your heart is in the right place it can often be overwhelming and a burden to actually get that peace of mind you are after. Purchasing life insurance is not as simple as just picking up an item off the shelf at the local mega mart.

Not to worry, we will walk you through the process and what to expect. You will soon be up to speed and know what life insurance is and how it works. It doesn’t have to be difficutlt.

What is life insurance?

The most basic answer, life insurance is a private contract between the insured and the company. On your end, you promise to pay your premium, and the carrier agrees to be there with the check to your beneficiaries when you die.

Pretty simple.

Leave it to the insurance industry to take something so easy and gum it up with jargon and options as far as the eye can see.

How does a life insurance policy work?

Remember you are not just grabbing a carton of eggs. There are a few things to consider when getting life insurance.

  • You have to be apply and then be approved for life insurance
  • There will be ongoing premiums for the policy it is not a one time payment
  • You pass away, the beneficiary then makes a claim to the carrier for the policy amount.

With some of the extras (riders) or features like savings and investment options built-in things can get much more complicated. But that is a conversation for another day. Many have debated the term vs permanent insurance.

Let’s just focus on focus on getting through step one. That is where you can make the most savings or biggest mistakes in the process.

Life insurance application process

The application process for life insurance is not particularly difficult but it is important to know your options.

Things to consider:

  • How much work do you want to put into this process?
  • Do you have any health history that might need explanation?
  • Are you scared of needles or just very busy?
  • How quickly do you need to get this all wrapped up?

Many companies now offer accelerated or simplified underwriting. This is great if you are scared of needles or just don’t want to be bothered with the exam that more traditional policies required.

In this exam typically there is a blood draw, a urine sample and some digging into your personal health situation. For many this sounds like a terrible way to spend an hour.

If you don’t mind paying 10% or so more you can often times skip a lot of the poking and prodding and have coverage as quick as the same day!

But if you are looking for the absolute best possible rate and you meet the criteria you will have to jump through those hoops. The company sets pricing based on risk and they will want to check you out thoroughly to give you the best price.

Fortunately life insurance is meant to be a long term commitment and you don’t have to re-qualify to keep the policy once you have it. Many people will have a policy for 30 or more years! Permanent insurance can cover you till age 121. I don’t know any one that believes they will live that long.

Once you have decided which route is best for you I suggest working with a life insurance broker to help shop the best company for your needs. A wrong step here can cost you hundred if not thousands a year.

Then you hurry up and wait for the carrier decision.

Congrats you are approved! Now what?

Life insurance premiums

You are qualified for coverage now how do you get it?

Finalize your coverage, this is your last chance to make any adjustments to the application that you have made. Make sure you have the amount of coverage you feel like you need.

Also make sure that your coverage period is going to work for your needs. Have 20 years left on your mortgage? Maybe a 15-year term is not the best fit? Or maybe you have a long line of 90 year old family members.

These things along with your approval class will determine your final premium. It is important to make sure it is something that is in your long term budget. If you miss you premiums or just can’t afford them any more you could have to go through all this over again to get a new policy later.

One other major thing to consider for premium is how often you want to make your payments. Many companies encourage customers to make annual payments. This saves you on average from 3-6% vs monthly. Might not sound like much but it can add up over 10, 20, 30+ years that your policy will cover.

The dreaded last step, life insurance death claim.

Something that none of us wants to think or talk about is our eventual death. Sadly none of us is going to get out of here alive.

When a policyholder dies, the beneficiary will need to notify the carrier of your passing. Once notified they will give you directions how to submit the claim including a death certificate.

Many companies will have a check to the beneficiary in a matter of days. That is after all what you have paid them all these years for. They take that very seriously.

Please be aware that in the first 2 policy years the company has a “contestable clause” If you pass away in that time they can and likely will investigate the details of your death.

Remember when you had to jump through the hoops in stage 1? That is why you WANT to go through it. This is what binds the company to making that payment.

As long as your death was not a suicide, and you did not misrepresent your application, they will pay the claim.

Your loved ones will be able to carry on and grieve your loss with out having to worry about how they are going to get by financially with out the paycheck they depended on from you.

How to get started

Now that you can wrap your head around what life insurance is and how it works, it is time to get the process started. Get instant quotes here and we will reach out to walk you through the application process.

If you have more questions we are available to discuss your situation and point you in the right direction.

We look forward to getting to know you and your needs soon.