Life insurance is a great addition to your portfolio that can help protect your loved ones and beneficiaries if you unexpectedly pass away. While no amount of money can ease the grief of losing someone, life insurance may help reduce the financial burden they may face. It's important to know how life insurance works and what to consider when purchasing life insurance so you can make an informed decision before you buy.
What Does Life Insurance Cover?
Life insurance can be used to help your beneficiaries pay for your funeral costs and a variety of other expenses, including:
- Everyday bills
- Wage loss
- Child care
- College tuition
- Business debts
It’s important to note that life insurance benefits may not apply if your death results from suicide, criminal or hazardous activities, or murder by a beneficiary.
What Are Some Types of Life Insurance?
There are numerous types of life insurance products on the market. A few of the most common types include:
- Term Life Insurance: Term life insurance guarantees financial protection for your family over a specific term.
- Whole Life Insurance: Whole life insurance provides insurance for your entire life, as long as you pay the premiums on time. The cash value increases over time, providing you with cash accumulation you can use in retirement or increasing your beneficiaries' benefits.
- Indexed Universal Life Insurance: Indexed universal life insurance includes a death benefit and a cash value component that increases based on the index you choose, helping to increase the policy’s value over time.
The type of policy you select should depend on how much you want to pay and how long you’d like your coverage to last. Remember that your age, gender, medical history, nicotine use, and dangerous hobbies may all play a role in how much you pay for life insurance. Generally speaking, the healthier and younger you are, the less expensive your policy will be.
How Do Life Insurance Ratings Work?
Life insurance company ratings reflect the opinions of independent agencies like A.M. Best, Fitch, and Moody’s. Each agency has its rating scale and standards. A.M. Best, for example, looks at the balance sheet, performance, and business profile of the companies it rates. Its six ratings include:
- A++, A+ (Superior)
- A, A- (Excellent)
- B++, B+ (Good)
Before you move forward with purchasing a life insurance company's policy, it's important to consider their rating from at least two agencies.