In the simplest terms, you pay the insurance premium to the life insurance company, and in exchange, they will pay a certain amount of money to your beneficiaries when you die in the form of a death benefit. Depending on the type of insurance policy, the premium can remain the same, increase, or decrease during the term of the life insurance policy. You can pay premiums annually, biannually, quarterly, or monthly. When you pay your premium in any frequency other than monthly, quarterly, or biannually, the insurance company charges a slightly higher premium to cover the expense of financing your payment, which is called a carrying charge on your policy.
The Death Benefit is the amount of money that the insurance company will pay your beneficiary when you die. This factor obviously greatly influences how much the premiums on your policy will be. The more coverage you want, the higher the rates will be. The death benefit will be paid to you as long as you keep making the premiums on time during the term of the insurance policy.
Another factor that effects how much your premiums will be is the duration of your policy coverage. This refers to the maximum period of time over which the insurance coverage will be available. If you buy a 30 year term policy, the death benefit will be available for 30 years, as long as the premiums are paid on time. There are many different duration periods that you can buy for a policy. You can buy some policies as short as 1 year, and as long as 30 years, or even your whole life. Policies that last until you are 100 years old or more are called whole life policies.
To help you decide which duration is right for you talk to one of our representatives. The duration is important because you want to make sure your loved ones are covered as long as they need the insurance. If you have to buy more insurance when your policy expires, the premium rates will be far more expensive. Consider how long your income would normally be needed by your family to determine the coverage. Make sure it lasts at least until you will retire.
Some policies have cash value, such as whole life and universal life insurance. This is different than the death benefit. The death benefit is paid when the insured dies, but the cash value is available when the insured is still alive. The difference is that while you are alive you may take money out of the cash value or borrow against it, but your premium rates are higher for this type of policy. In general, term life insurance does not have any cash value, and therefore has the most affordable premium. The difference between the death benefit and cash value is the protection value of the life insurance policy.
What happens if I fail to make the required premium payments?
If you miss a payment, the insurance company provides a grace period after the due date. During the grace period you can make any payments that are due and keep the policy in force. If you fail to make premium payments throughout the grace period, then your policy will lapse, which means you are no longer covered with the insurance. After that, if the policy has any cash value, the insurance company can withdraw from the cash value to pay the premium and keep the policy in force. If you have a flexible-premium policy, you have the option to make the premiums at different rates, which means they may be reduced or skipped as long as there is cash value in the policy.
What if I can’t pay the premiums due to disability?
Some policies may have a rider that allows the policy to stay in force when you are disabled and can’t pay the premiums. This rider is called a waiver of premium for disability. If you become totally disabled, usually for 6 months or more, the policy stays in force and you do not have to pay premiums during your disability.
I have applied for insurance, when will my coverage start?
This depends on several factors. You can get your insurance in force right away with a temporary binder, which gives you coverage during the underwriting time, while the company approves your policy. If your policy is declined, the temporary binder may not have been effective. The insurance effective date is often different from the date the policy is issued. You may not be covered even after your policy is approved, but you can get covered before the policy is ever sent to you. If you purchase the policy, check to see when the insurance is effective and when it expires. A policy is never active until the company has received a premium payment.
What type of risk are you?
Insurance companies view everyone as a certain risk class, because everyone dies at some point, and most everyone has some health problems at some time in their life. The risk class determines the rate of premium that a person will have to pay the insurance company. There are different classes of risk such as: preferred, preferred plus, standard, and sub-standard, super preferred, super standard, and more. Even if you have no health problems, you may not be eligible for the highest class. This is due to your age, your family history, any hazardous activities that you are involved in, and many other factors. Unless you are in perfect physical condition and your family history is perfect, and you have no activities that are dangerous, then you are may be a standard risk. Keep in mind that only about 10% of clients qualify for preferred plus, the lowest risk class with the lowest premium rates.
You should run your free life insurance quote now, to see what kind of premium rates you will pay, and to choose your policy.