Life insurance: 8 most important facts about life insurance in the US that everyone should know
About why it is so important to insure your life, how to do it with the maximum benefit for yourself, and why you should not count on insurance from the employer, says Olga Dadressan, vice president of the financial company Primerica (Florida). So lets know about 8 most important facts about life insurance in the US that everyone should know.
Life insurance is love for your loved ones
People do not always understand why you need to ensure your life. Especially those who came from the former Soviet Union. We have a lot of superstitions related to death, talking about it. We are so superstitious that we are afraid that if we suddenly got ready, we will jinx ourselves and immediately die. But thinking about life insurance is no more superstitious than thinking about a fire extinguisher.
You don’t think that if you have a fire extinguisher in your house, a fire is bound to start. It simply means that if there is a fire, then you are prepared, you always have a chance to save yourself. The same with life insurance. If you have it, it does not mean that you will die. It simply means that if something happens to you, your family is provided for and prepared for this tragedy.
To get life insurance in the US is enough to have legal status. The company does not ask for residency or citizenship, but you must legally reside in the United States and have a Social Security number.
Young people need life insurance more than older people
What is life insurance? Most people think that it is necessary for the elderly, who are likely to die soon. Maybe insurance will be required in old age for a funeral, for the last expenses at a cemetery, for awake. It is at this age that life insurance is not important. Because when a person dies in old age, no one depends on him financially. And everything that he has accumulated in his life remains with his relatives, who can use these savings for the funeral. But even if an elderly relative has nothing, the family, of course, will tense up, pay for the last journey, but for her, all this will not be so critical.
It is much more important when someone financially depends on us. This usually happens while we are still young, healthy, and working. We bring income to the family. Most often, life insurance is important for parents.
If dad goes to work and mom sits at home, then if suddenly the breadwinner of the family does not come home from work, mom will have nothing else to feed the family, pay bills, and so on. What should she do if the deceased dad did not have insurance?
Therefore, life insurance is very important to replace the income of the person who brings it into the house.
If you have two or three children who are 3-5 years old, then even if something happens unexpectedly to one of the parents, the children need to be supported for another 15-20 years. That is, the same income that dad brought should come to the house for another 15-20 years.
I give an example very often so that people understand. Husband and wife or one of them bring income. For example, one of them, let’s say, dad, was transferred to work from Florida to Texas. He went to Texas while the family stayed in Florida. Does he send money to the family every month? Of course yes. His income goes to the family. What if dad was transferred to heaven? His family’s expenses remained the same. If you have a family, you must provide for the expenses of your near and dear ones after your sudden departure.
Unemployed people also need life insurance
My friend died of an aneurysm suddenly. She left a loving husband and a young son. Now her husband must be both mom and dad to his son, but instead, he is forced to work, go on business trips and find strangers to take his son to and from school. The costs of sudden death, hospital, funeral are also huge.
If my girlfriend had insurance, he would be able to replace his income for at least a few months, if not years, take care of his son, grieve, hire the right people, and so on.
It is very important to have insurance even for a non-working person. Maybe not so big, for 200-250 thousand dollars. This is often very inexpensive but will help with things like paying bills. For example, for a non-working 35-year-old mother, a 30-year policy for $250,000 costs between $20 and $35 per month. This is not much, but what peace in the family.
The less we pay for life insurance, the better.
Insurance companies in the US are rated by AMBest. It is desirable to work with companies that have an A + rating. This is the highest rating. And it most often does not affect the cost of insurance in any way.
There is a very big conflict of interest in the life insurance industry. The more the customer pays for their insurance, the more the agent earns. There are so many policies designed to be profitable for the insurance company but not for the client. Agents are encouraged by selling these policies to their clients. The client, due to some unnecessary options, instead of paying $50 for the same amount of insurance coverage, pays $300. And it turns out that even when the agent sells a policy that is not very beneficial for the client, he does not think doing something unethical. Because the company educates its customers well enough.
But we need to look at things realistically. The less we pay for insurance, the better. Because, most likely, we hope that we will not need it for many years and we will live happily ever after.
We need life insurance for a certain time – until the children grow up until there are no savings.
Choose long-term insurance
There are two main types of policies in America. The first covers long-term insurance for 10, 20, 30 years. If someone has children who are now 4-5 years old, in 30 years, they will, respectively, be 35. Likely, by this time the children will already figure out how to support themselves financially.
If we are already 55-70 years old, the need for insurance has already passed. At this age, we no longer need insurance, but money for old age, savings.
If we buy cheap insurance for 30 years and at the same time actively save money, then when the insurance period ends, we have the same savings that the policy provided – about half a million dollars. And if we have these savings, insurance becomes less important. Therefore, the cheapest way to get life insurance is temporary insurance.
I recommend insuring for the longest term to insure until old age, and at the same time invest in the future.
Life Insurance is more expensive for smokers
For a 35-year-old wife and husband, a $500,000 policy for 30 years will cost between $50 and $80 per month, depending on the state of health. Usually, those wishing to receive a policy must undergo a medical examination, which is paid by the insurance company, they are awarded a rating, according to which the tariff is determined. There is a standard rating that the majority gets, there is a rating of smokers, it is usually 2-3 times more expensive than the standard one.
And sometimes, depending on the insurance company, customers are awarded a rating that gives a discount for good shape and excellent health.
In general, the cost of insurance depends on the amount, on the period for which a person is insured.
Avoid savings life insurance policies
The second type of insurance in the United States is different types of savings policies. They are much more expensive. The insurance industry has figured out how to make a boring and intimidating product attractive. This is a savings policy. The company offers to keep money with her, which will be paid to your family after your death.
These policies are much more expensive than temporary insurance. For the same money that a person could buy, say, $500,000 in long-term insurance, a savings policy will offer him $100,000 or $50,000 or less. With this money, the family will not be able to hold out for 10-15 years, only her funeral will be enough for her.
The second disadvantage of such an offer is the savings within the policy. They pass into the possession of the insurance company, which is never explained to the client. This is called savings account inside any insurance policy. Insurers always say you can have access to your money, but they don’t say the money will be yours. But the point is, having access to your money means you can borrow it at interest. In other words, you can take your money from the insurance company, but then return it with interest. Therefore, keep your money and savings away from insurance companies, contact them only for insurance.
It is because of this type of insurance that many people get confused and think that insurance is expensive and they cannot afford it.
Accumulative policies such as Universal Life, Index Universal Life, Variable Universal Life, Flexible Universal Life, and others are three to four times more expensive than long-term ones, and such as Whole Life are sometimes 10-12 times more expensive.
Don’t rely on employer life insurance
First, such life insurance is often minimal in size. It starts from 10 thousand dollars, if it is a small company, and if the company is larger, then the insurance covers the amount of annual income once. That is, if you receive 70 thousand dollars a year, then the insurance payment will be exactly this amount. Once. But this money is not enough to replace the family’s income for more than one year.
Secondly, if you are counting on employer insurance, ask him for a certificate and read the terms of coverage. Most often, to get through the employer, you must die actively being at work (actively employed and actively at work). This includes paid time off and the time you spend commuting to and from work from home. But if we fall ill with a serious disease, such as cancer, and begin treatment, we are no longer actively at work. In this case, we are laid off because the employer needs to hire another employee to replace us.
In large companies, you can be given a disability, but even then you are no longer considered an active worker, so your life insurance is canceled. And you can no longer get personal insurance because for it you need to be healthy.
Therefore, consider life insurance from the employer as basic, and the main coverage should be through an individual policy, regardless of where you work or whether you work at all. In addition, insurance through the employer usually increases in value every year and is not fixed for the long term.