Life is unpredictable, and no one can predict what will happen in the future. Sometimes, things go so well that we forget how unpredictable life can be. With just one unexpected event, one can lose most of the support they have, and find themselves in a life-threatening situation. Whether it be a car accident, a medical condition that appears, or simply old age, there are many ways one can pass away.
While we cannot control life, nor predict it, we can prepare for it. Most of the problems we face in life come from a lack of adequate funds. Whether illness, sadness, lack of or opportunities, financial resources play a significant role.
If you are the primary breadwinner for your family, an injury or death could put you in a financial hole. While your employment may stop, the bills won’t, you or your family may have outstanding debts or medical expenses. Without your monthly income to support them, they might risk financial hardship.
This is why it is crucial to know the essentials of policies like life and disability insurance. One way to prepare for the unexpected is by getting aninsurance policy. Two types of policies are important to consider: life insurance and disability insurance. They help secure you and your family financially if disaster strikes. They allow you to prepare for the worst-case scenario, while ensuring that you leave your loved ones with the right support and financial resources in their time of need.
What is Insurance?
Insurance is the guarantee of financial buffer for a person upon the occurrence of an unforeseen situation. There are different kinds of insurance to cover various aspects of living. It is pretty easy to access any insurance, as many organizations offer insurance protection.
The fundamental elements of an insurance agreement are:
- The parties (the insurer and the policyholder)
- The beneficiary of the insurance (which can also be the policyholder)
- The subject matter of the insurance
- The duration of the insurance
- The possibility of termination
- The amount payable as premium and the frequency of payment
Insurance is an agreement between the insured and the insurer (usually a company), whereby the insured agrees to pay an amount of money, known as the insurance premium, to the company regularly based on the promise that the insurer will pay him or his beneficiary a particular amount of money on the occurrence of an event.
You can take out insurance policies for cars, homes, expensive mobile phones, disability, life, and anything that one has the possibility of losing.
What is Disability Insurance?
This is an insurance policy to prepare for the unpredictable health events. Statistics show that almost 50% of adults would have some lifelong illness at some time in their lives. Since we cannot tell whether we would be among that percentage, it is better to prepare for it.
This insurance policy deals with possibilities that could happen while we are alive that stop us from working. This could be a chronic disease, body failures, illness, injury, etc. Instead of being cut off totally from receiving the monthly salary we did receive when we were working; we received 40-60% of the salary for some time until the time we specify or when we are back on our feet.
How Does It Work?
- This insurance plan can be for the short term or the long term. The short term is often between ninety days to two years when the illness or event happened. On the other hand, the long term is often beyond two years.
- Where the policyholder has both the short term and the long term plans, the long term only starts after the short term.
- This insurance plan ensures that the policyholder can afford their lifestyle and extra health commitments even after losing their job.
- It is a plan that is shaped similar to the salary structure as it is paid monthly. Only half of the original salary is paid because the insurance companies wouldn’t want people to stop working because they know that some money somewhere can pay them the same amount they earn.
Who Manages Your Disability Insurance Plan?
- Employer – Where you had an accident in the workplace that prevents you from working, and the country has an employee compensation law in place, the employer is entitled to pay you some money as an employee compensation fund.
- State and Country – Sometimes, your state or country might have laws to cater to individuals’ jobs by paying them some stipends periodically.
- Insurance company – They administer the disability ensure plan, perform medical examinations, collect premium payments, and ensure insurance payment payouts in the case of a disability event
Even where the other parties are willing to pay stipends, it is essential to have your plan. This is where the insurance company comes in. You pay periodic premiums for your insurance policy to enjoy it when you need it.
Top Things to Keep in Mind When Accessing Disability Insurance
Here are some of the most important things to keep in mind about disability insurance.
- If you or other people depend on your income, you need it
If an injury affects you or your family a lot financially, you need disability insurance. Long injuries which last several months may bankrupt you if you don’t have disability insurance.
- The policy replaces a portion of your total income
If you are unable to earn due to being ill or injured, disability insurance will help you significantly. It will ensure you can pay essential expenses. These may include medical bills, groceries, utilities, and even home or car payments.
- Most long-term conditions are due to illnesses
Why it is true that a disability may occur due to an accident, is not usually the case. Most of the time, the inability to work is caused by an illness.
- You should get it even if you are healthy and young
Statistically, almost 1 in 4 young adults of today will face some sort of disability before the age of 67. Additionally getting disability insurance is also way cheaper when you are young and healthy.
- The risk of disability in your working years is significant
The risk that you may face some sort of disability during your career is higher than people realize. An average person who is 20 years old is more likely to be disabled than to pass away. Disability insurance will make sure to cover your expenses if this does happen.
What is Life Insurance?
This kind of insurance policy tries to prepare for the inevitable. Everyone must die; however, there is no one that knows when each person will die. We need this insurance policy to make our demise easy on our loved ones and dependents and ensure our death does not spell financial doom to them and their lifestyle.
This policy helps provide financial support to our loved ones and dependents when and after we have died. It helps to care for our children’s education, support our partners, and help other persons who depend on us financially. We would not love to leave them stranded when we are gone, which this policy aims to achieve.
Life insurance is all about protecting your family’s financial future in case of your death. When you are gone, your family may run into financial troubles. Life insurance can help them take care of mounting bills; settle any debts or handle end-of-life expenses that you leave behind.
How Does ItWork?
- This insurance policy has two kinds of plans, dependent on the length the policy would last: term or whole. It is a term plan when the insurance policy starts after the policy holder’s death and ends after a specific time. The whole plan is when the insurance policy starts after the policy holder’s death and continues throughout the beneficiary’s life.
- The policyholder must have been consistent in the payment of his premium while he was alive, to ensure that this policy is accessible to his beneficiary. The premium is calculated using a number of factors including the health status, lifestyle habits, financial status, current age, and a few others of the policyholder.
- The beneficiaries are the policyholder children. The insurance plan can last until the children are adults and can take care of themselves. The plan could also cover spouses where the other spouse does not work, or most expenses are paid jointly.
Top Things to Keep in Mind When Accessing Life Insurance
Here are some of the key points to remember when buying a life insurance policy:
- Your current financial situation is important
Analyzing your current finances is essential for considering which life insurance policy suits you best. Take time to look at what assets you have that could help your family financially. After checking you may be better able to decide which policy will suit you best.
- Know how much coverage will be enough
It is easy to underestimate how much life insurance you will need. People usually just consider things like major debts. Essential things like everyday expenses and bills are also important to consider before buying a policy.
- Know the difference between different life insurance policies
A term life insurance policy only provides coverage for a set amount of time. This can be anywhere from 10 to 30 years. It is a useful option to cover the most financially vulnerable years of your life.
A permanent life insurance policy provides lifelong coverage. This makes it more expensive of the two options. It also builds cash value over time. This cash value can be used in times of emergency or to even cover premiums.
Factors to Consider When Calculating the Insurance Premium
It would help if you did not create an insurance plan without projecting several factors and the estimated costs to cover these factors. These are some of the factors to put into consideration before going into this insurance plan:
- Current emolument
Since you cannot pay more premium than you earn, you must ensure that periodically paying the premium will not affect your current lifestyle and spending.
- Number of dependents
You have to calculate the number of dependents who would lose their financial support when you are dead. This would help to put into perspective the amount of premium you should have with your insurance company.
Debts and mortgages do not die off when the debtor or mortgagee dies, so when considering your premium, you should put in your debts as your administrator would have to pay those debts even after your death.
- Amount of Liquidity You Have
Another essential aspect up for consideration is the amount of liquidity you have apart from the premium. If you have a massive amount of liquidity, it means your dependents would not depend heavily on the premium, and it will save you from some financial commitments.
- Time the insurance plan would last
Another factor is the time the insurance plan would last. The premium paid is dependent on how long you wish the insurance plan to be effective. Do you want to be a source of income to your dependents forever, or do you want to support them until they can stand on their own? Answers to these questions determine your premium.
The Bottom Line
Life will never become easier simply because you have purchased a life or disability insurance plan; however, you or your beneficiary will have access to the protection that insurance can provide.
Life and disability insurance is an excellent option for anyone, young or old, who works and become a victim of any disability leading to loss of income; and those who have partners or children. This makes both types of policies a great option for anyone. Purchasing a policy can ensure long-term financial stability for you and your family. If you’re interested in learning more, consider speaking with a certified life insurance advisor or brokerage to help assess your financial situation and personalized insurance needs.