When people talk about insurance, they usually focus on health insurance because it’s the kind they use the most. However, there are other kinds of insurance that are just as crucial for your long-term financial wellbeing. Read on to find out what life insurance and disability insurance are and why you need them.
You’ve heard people discuss life insurance before, but you have lots of questions, such as, “What is term life insurance? Who are my beneficiaries?” When you purchase a life insurance plan, you agree to pay a certain amount every year. Sometimes this amount is broken up into monthly or quarterly payments, but sometimes you pay it all at once. When you die, your beneficiaries (your children or other survivors named in your will) claim the policy. Your life insurance company pays them the face value of your plan and disburses any remaining funds over a set period.
There are two types of life insurance to know: term life insurance and traditional whole life. When you take out a term life insurance plan, you agree to pay into it for a certain period, such as 20 or 30 years. As a result, it’s cheaper than traditional whole life plans. Term life insurance plans are further split into decreasing and level plans. With a decreasing plan, your loved ones receive a large amount of money right away, and then a smaller amount with the rest of the payments. With a level plan, your beneficiaries get the same amount every time. If you’re leaving behind lots of debt, a decreasing plan is your best bet; if your loved ones will use your payouts as income, a level plan is better.
On the other hand, traditional whole life plans never expire. If you purchase one when you’re 20 and live until you’re 95, you pay into the same plan the entire time. Also, if you have financial troubles, your whole life plan serves as collateral to help you get the funding you need. However, traditional plans tend to be much more expensive, and you must be sure that you can maintain your payments for your entire life.
It’s easy to see the importance of questions such as “What is term life insurance?” because everyone dies someday. However, if you don’t have a disability and are able to work regular hours, you think that you don’t need to invest in disability insurance. It’s easy to become complacent if you are healthy and work in a low-risk environment. However, the Social Security Administration estimates that, before retirement, 25% of workers are injured to the point of disability. Do you have enough savings and high-quality health insurance to provide for your family if you can’t work for several years? Don’t forget that injuries usually mean lots of extra doctor’s appointments and physical therapy.
Prepare for the worst by investing in disability insurance regardless of your perceived risk. The SSA offers plans if you’re permanently unable to work rather than temporarily sidelined. Their payments tend to be small due to low funding and a high number of eligible Americans. As a result, you should also look into private disability insurance plans. Make sure to read these providers’ contracts carefully, though. Many only offer coverage for three years and charge high premiums if your health, work environment, or age increases your risk.
Insurance is a complicated but essential topic to understand, and most adults don’t take the time to find answers to issues such as “What is term life insurance?” Educating yourself on life and disability insurance ensures that you’re covered if an emergency occurs.