During the coronavirus pandemic, life insurance applications were on the rise. According to the MIB Life Index, life insurance applications rose 1.5% in the first half 2020 compared with the previous year.
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The industry group reports that application activity for Americans aged 45-59 rose by 3.4%, while activity for Americans older than 44 increased by 0.5%.
Protecting yourself and your family against financial ruin is a good thing. However, fear of getting Covid-19 shouldn’t be the main reason for purchasing life insurance. Barbara Ginty, a certified financial advisor and host of “Future Rich”, tells CNBC Make It. She says, “I would only recommend purchasing life insurance if there is a real need.”
Before purchasing life insurance, you should ask the following questions: Will your death cause financial hardship to your loved ones? Are you a dependent on your income for a spouse, partner, or child? A spouse or partner may have bought a home that was based on two incomes. A parent may have co-signed a student loan that is not payable if you die.
Ginty states, “You don’t want a loved person to experience the tragedy and financial tragedy of losing a loved ones.” A financial tragedy can be prevented.
Here’s some information to help you decide if you need life insurance beyond the fear of the pandemic affecting you or your family.
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What is the difference between permanent and term policies?
You should understand all the policies that are available to you if you feel you have a need for life insurance. There are two main types of life insurance: permanent and term. Permanent policies include whole life insurance.
Term life insurance covers you only for a set period, usually 10, 20, or 30 years. You are covered if you die during the term of your policy. You’re no longer covered after the term ends. Term life insurance is the best option for people who only require coverage for a short time such as those who are raising children or paying off a mortgage. For those who need some coverage but don’t want it to cost too much.
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Permanent life insurance, which covers you for your entire life, includes whole life, variable and universal life. Permanent policies are different from term life insurance, which only pays a death benefit, and create a savings account that can either earn minimum guaranteed interest or a monthly dividend. These earnings are usually tax-deferred, and referred to by the “cash value.” You can borrow against them, but you will typically have to repay them. You can use the cash value to pay your premiums with some policies. This is a great option for people who need to protect their inheritances or estate taxes.
Here are some things to remember when purchasing life insurance
Ginty stated that there is a huge difference between purchasing life insurance and being sold it. “I advise people to educate themselves before they go shopping for the life insurance they want.”
After you have decided on the type of policy you want, you can decide how much life insurance to purchase. Standard policies typically range in price from $250,000 to $1 Million. The amount you will spend on the policy will determine how much you’ll need. Are you looking to pay for funeral expenses? What about your mortgage? Life Happens, a non-profit insurance information agency, offers several calculators to help you determine how much coverage you might need.
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As part of their benefits package, some employers offer group life insurance. These policies end once your job is done. If you are fired or quit, you will be without coverage. This may not be a problem if your life insurance isn’t essential, but you might want to purchase additional coverage if you do.