![Can You Get Life Insurance for Your Parents? [Complete Guide]](/assets/images/4195a596c9c2e2afdae7712685f340fc.png)
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Learn how life insurance works, what types of policies are available, how much coverage costs, and how to buy a policy.
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A life insurance policy is a contract between an insurer and a policy owner. In order protect against death, the policyholder agrees to make regular payments - known as premiums - to the insurance company over the time specified in the contract. The insurer, in turn, commits to pay the entire sum assured to the beneficiaries should the unfortunate event occur. Beneficiaries can be your children, spouse, or any other dependent named in the policy contract.
There are two main types of life insurance:
A term life insurance covers a specified period. Depending on the policy contract, you can buy a 5, 10, 20, or 30 year policy. A term option is the simplest and cheapest way of buying a life insurance policy. You can use it if you want to cover yourself over a short period. However, if the term set on the policy contract expires when you are alive, your beneficiaries do not get a payout, and you can only buy another policy.
As its name suggests, permanent life insurance covers your lifetime. It has no expiry date, and you have to pay the premiums throughout your life. The premiums remain the same. Although the permanent life indemnity costs are higher than the term cover, you enjoy features like cash value that you can borrow against. The cash value also grows with time. Permanent life insurance is the most common form of life cover and may also be specified as whole life, universal life, index universal life, and variable universal.
Life insurance acts as a cushion for those that depend on you financially. The payouts paid to your dependents after you are gone will fill in the gap when your regular income stops flowing. Therefore, if you still have dependents, it is convenient to opt for life insurance. You can also get a life cover even when your children are independent but you still want to support them after you are gone.
The term life cover is much cheaper than the permanent. It is a good option when there's a time frame in which your loved ones depend on you financially, since you can match the term to it. For example, you can guarantee continuity in your mortgage installments even after death through the term cover. The expiry date for the term cover can be the day you pay your final mortgage installment or your preferred date. In that case, your children or spouse will not be left with the burden of paying your mortgage.
If you, however, want to provide financial support regardless of when you die, you can go for the permanent option. The permanent option can also be good for people who want to extend their support to their grandchildren. You can also take a permanent life cover if you want to protect your dependents and still have an investment that can be used to guarantee a loan.
Term life insurance is the most affordable life insurance. The term life cover is the cheapest form of life insurance and offers you flexibility as you are allowed to set the term for the insurance policy. You can use it to protect your family against financial difficulties if you die when you still have dependents or have not completed your mortgage. If your mortgage goes for ten years, you can take a term cover of ten years to guarantee your family a source of money to clear the mortgage if you die within the ten years.
The principal advantage of life insurance is that, regardless your income level, it will protect your loved ones financially in case of a tragedy. It allows you to ensure that people who depend on your income will have the money to cover major expenses or debts you might have had.
Additionally, if you choose a permanent life insurance, you can accumulate a 'cash value'. This cash value grows over time and can be used to cover expenses or help you borrow a loan from a bank. Even if you do not have any other security for the loan, most banks will grant you a loan against the cash value.
Life insurance rates depend on factors such as whether you have taken a term or permanent life insurance. The rates will also vary across different insurance companies. However, the average cost for a term life policy is $27 monthly for a $500k payout after twenty years. Please note that the rates may change if you vary the terms of the life insurance contract. But your insurer can provide you with the exact figures depending on your choice.
Calculation of life insurance rates is based on several factors that include age, gender, occupation, and health. The insurance rates, therefore, depend on whether you are a man or a woman or whether you are young or old. In essence, the insurance company is assessing your risk. Despite the risk considerations, generally, insurance rates are based on the rate per thousand. If the rate per thousand is 0.3 and you elect $500,000, then your premium will be about $15 a month (0.3 * 500 = $15).
The documents needed when applying for life insurance depend on the type of insurance you are applying for. Documents required for term life insurance may vary slightly from those needed for permanent life insurance. The documents may also vary depending on the insurance company. However, most insurance covers require the following documents:
