Life insurance FAQs: Everything you need to know

In life, protecting our loved ones is a priority. Life insurance can be a key tool in ensuring the financial security of your family. If you’ve ever wondered what exactly life insurance is, how it works, or which type is best for you, this article will answer those questions and more. Below, we address frequently asked questions about life insurance so you can make informed decisions.

 What is life insurance and how does it work?

Life insurance is a contract between a person (the insured) and an insurance company. This agreement states that in the event of the insured’s death, the insurer will pay a sum of money (called a «death benefit») to designated beneficiaries. The primary purpose of life insurance is to provide long-term financial security for the insured’s loved ones after their death. Additionally, some life insurance policies offer additional benefits, such as cash value accumulation or critical illness coverage.

The premium you pay depends on several factors, including age, health status and type of policy. There are several different types of life insurance, each designed to meet different needs and objectives.

Term life insurance vs. whole life insurance

One of the most common questions is about the difference between term life insurance and whole life insurance. Here we explain both types:

• Term life insurance: Provides coverage for a specific period, usually 10, 20 or 30 years. If the insured dies within the contracted period, the beneficiaries receive the payment. It is an economical option, ideal for those who want temporary coverage at low cost.
• Whole life insurance: Lasts for the life of the insured, as long as the premiums are paid. Unlike term insurance, this policy includes a savings component, known as cash value, which grows over time and can be withdrawn or used as collateral. Although more expensive, it offers permanent coverage and savings benefits.

Which is better?

The choice between the two depends on each person’s needs. Term life insurance may be the best option for those looking for an economic solution for a specific period, such as while raising children or paying off a mortgage. On the other hand, whole life insurance is more suitable for those who want lifetime coverage and are willing to pay higher premiums.

What are the main benefits of life insurance?

The main benefit of life insurance is the peace of mind that comes from knowing that your loved ones will be financially protected in the event of your death. Here are some of the key benefits:

• Financial protection for dependents.
• Covers funeral expenses and outstanding debts.
• Some policies allow you to build up cash value, which can be used during your lifetime.
• Offer long-term financial stability.

In addition, life insurance can be a tool for your estate plan. By naming your beneficiaries, you ensure that they will receive a tax-free amount after your death, which can help cover debts or ensure their financial well-being.

Factors that affect the cost of life insurance

Several factors influence the cost of a life insurance policy. Here are the most important ones:

• Age: The younger you are when you take out the insurance, the cheaper the premiums will be.
• Health: People with good health conditions pay less, while chronic illnesses or habits such as smoking can increase the cost.
• Type of policy: Term life insurance is usually cheaper than whole life insurance.
• Coverage amount: The higher the death benefit, the higher the premium.

That’s why it’s essential to evaluate your needs and circumstances before deciding on the type of insurance and the appropriate coverage.

How do you choose the beneficiary of the insurance?

The beneficiary is the person or people who will receive the life insurance payment after the death of the insured. Choosing a beneficiary is a crucial decision, as it can be any person, entity or even a charity. When selecting a beneficiary, consider the following:

1. Dependent loved ones: It is common for parents to choose their children or spouse.
2. Future changes: Review and update your policy when your circumstances change, such as the birth of a child or a marriage.

It is important to keep in mind that the beneficiary must be a trusted person, as they will be responsible for managing the funds.H3: ¿Qué sucede si no se nombra un beneficiario?

Si no se designa un beneficiario, el pago del seguro podría entrar en el proceso de sucesión, lo que podría retrasar la distribución de los fondos a los herederos. Por ello, es recomendable nombrar uno o varios beneficiarios y mantener actualizada esta información.

How much life insurance do i need?

Determining how much life insurance you need depends on several factors, such as your current income, outstanding debts, and your family’s future needs. A good rule of thumb is to multiply your annual salary by 10 or 15 to get a ballpark figure for the coverage needed. However, you should also consider things like:

• The amount of debt you want to cover.
• The years of income you want to guarantee your family.
• Any major future expenses, such as your children’s college.

Adequate life insurance will ensure that your loved ones don’t face financial hardship in your absence.

Is life insurance tax-deductible?

In most cases, the death benefit beneficiaries receive is not taxable. However, the cash value built up in a whole life insurance policy may be taxable if withdrawn during the insured’s lifetime.

What happens if I stop paying on my policy?

If you stop paying on your term life insurance, the coverage stops and you will not receive any benefits. In the case of whole life insurance, you may lose coverage, but some policies allow you to use the cash value to pay premiums and keep the policy active. In short, life insurance is essential to protect your family and ensure their long-term financial well-being. Make sure you understand the different types of policies, costs, and benefits to choose the right option for you and your loved ones.