How Does Life Insurance Work?How does life insurance work anyway? Life insurance is very unique, because it is completely selfless. You don’t buy life insurance for yourself, you buy it to protect the ones you love to prepare for the unknown.
You’ll send in your payment (known as premiums) to your company and then when you die, the company will pay your designated beneficiary the death benefit. By purchasing a policy, you are transferring the risk of a financial loss resulting from your death. The company will accept this risk by charging you the monthly premiums which they set. This is called “risk transfer” and is used to protect your family from feeling the financial loss that could occur. So it’s easy right? If you die your family will get what is called the “death benefit.” Well, it’s not exactly this easy… there is a bit more information involved and this means you need the help of an agent to choose a policy that’s right for you to protect your loved ones. Some people need a temporary policy while others need a permanent policy. Read more about their differences and what they can do for you here on term versus whole life insurance. Or you may also be searching for a policy for your golden years, if so check out Life insurance for seniors and what you need to know before buying. Purchasing your policyWhen you purchase your policy or I should say….before your purchase your policy, your agent takes information from you and you fill out the application to the best of your knowledge. You should always be truthful. Your information is used, such as your age, if you are a smoker, how your health is, family history, gender, hobbies etc… This information is necessary to put you in a large group of other individuals with similar profiles as you. (Ex: males, females, smoker or non-smoker, same age group, overweight, etc…). An estimate is then made on the number of people who may die over time in this particular group who share similar profiles. They will then calculate the amount each person in the group has to pay to cover (a portion of) the loss of others who die in the group. So there are quite a few people in the groups and very few of them die. So how does life insurance benefit your loved ones? Read up on the top reasons to have a policy! Read more on Beneficiary life insurance. How to calculate life insurance ratesThe technical term for this is called underwriting. What happens is that the underwriter will decide what your insurance rates or premiums will be. They do this by calculating the risks of a loss and what kind of risk you pose. If the insurance company is willing to take that loss, they’ll put a price on it along with the terms of your contract, which results in the premium you will pay. Simply put, the higher risk you pose… the higher premium you’ll pay. So even though you may be given a cheap quote for x amount you could end up paying more depending on what type of risk you are. Factors such as your weight, blood pressure, cholesterol, family history, vocation, hobbies, habits and others all play a role in helping the underwriters decide how low or high your premiums will be. Hobbies you say? Yes… your hobbies also can affect your premiums. For instance if your hobby is sky diving then you pose a greater risk because this is a dangerous hobby! Remember, the higher risk you pose the higher your premiums will be. This is one of the main reasons why those instant online quotes you get may not always be accurate! Always remember to seek the advice of an experienced professional when planning to compare life insurance and before your purchase. Put your agent to work for you to help you find the best life insurance company and policy to meet your needs. Learn more about the type of exams you may need to take!
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