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Insurance Education

How Does Life Insurance Work, Anyway?

July 7, 2017

So you made it through the 3am study sessions and the 8am classes, the part-time gigs and the unpaid internships, the resumé-building ventures and the resumé-writing workshops. You IKEA-hacked your way to a killer apartment, and you have dry clean only clothes hanging in your PAX wardrobe system. You made the connections. You got the interviews. And finally, you got the job.

What Does It All Mean?

Now that you’re well on your way to full-blown adulthood, you’ve probably been doing a little goal setting. A little financial planning. And a lot of head scratching. What do you want right now? What do you want in the future? And if you were gone tomorrow, what would you want to leave behind? Maybe you have a line in your budget for life insurance, but you’re not sure yet exactly how it works.

Life Insurance: The Short Version

In some ways, life insurance works like every other kind of insurance. You pay a little money every month (or whatever your payment schedule is) so that if something bad happens, you know that most of the resulting expenses will be covered.

Of course, the big difference is that most types of insurance you carry (health, car, home, etc.) benefit you throughout your life. Life insurance usually (although not always, which we’ll get to shortly) doesn’t pay out benefits until you’re gone. If affirming your maturity is the goal, nothing says #adulting like taking responsibility for your debts and expenses even after your own death.

The right insurance policy can help cover your student loan debt, your credit card debt, and the cost of your funeral so that your family doesn’t have to. Their hearts will still be unimaginably heavy, but the additional weight of unexpected financial obligations is preventable.

Term Life vs. Whole Life Insurance

There are a lot of decisions to make when you’re choosing a life insurance policy, and Our Life Covered℠ can help by providing information to help you decide which life insurance plan works best for you, as a young adult. It’s good to know right from the beginning, though, that there are two main types of policies, each with its own set of benefits. So what is the difference between term and whole life insurance?

TERM LIFE INSURANCE provides coverage for a specific amount of time agreed upon at the time of purchase…usually 10, 20, or 30 years.

  • It’s typically the least expensive option. Unlike a permanent policy, because there is less risk of you passing away during the term period set out in the policy, premiums are usually lower. By the same logic, the longer the term is, the higher the premium will generally be.
  • It’s often the simplest option. If your death occurs during the term of coverage, your beneficiaries receive payment. If not, you bought peace of mind for a decade or three, and you’re not dead yet. That seems like a win.
  • It’s a flexible option. Term life insurance can generally be converted into a permanent (whole life) policy. The advantage here is that if you started out with a preferred classification, you typically get to keep it after the conversion without taking another medical exam. There’s usually a time or age limit on this option, but it can vary from one insurance company to the next, so be sure to ask about it.

WHOLE LIFE INSURANCE is just what it sounds like…coverage for your whole life.

  • It’s permanent. And it usually costs more, because it’s guaranteed to provide benefits for your family at some point, although hopefully not for a very long time.
  • It usually comes with level premiums. Yes, those premiums are higher up front, but they probably won’t go up over your lifetime. With term life, your rates will most likely go up with each new policy you need to purchase.
  • It can sometimes accumulate cash value, depending on the policy. In most cases, this cash value can be used if you need it, but you’ll want to check with a financial advisor first if you’re planning to go that route.

If you’re looking for “right now” coverage, an affordable term life insurance policy is probably a good bet. If you’re the type who likes to buy something once, and have it forever, we can help you look for the best whole life insurance policy.

OK, What Next?

This is just a nutshell explanation, of course, but it should be enough info to start an elevator conversation about life insurance, if that’s something you’re interested in doing. Or you could start that conversation with our team of insurance experts, which is what we’d recommend if you a.) don’t want your coworkers to make a break for the stairs when they see you coming; and b.) do want to turn your new knowledge into a quality, affordable life insurance policy. 

Ready to talk? Let’s start with a free, no-strings-attached quote from Our Life Covered and take it from there!

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