What is life insurance for?

What is funeral, burial or final expense, insurance?

Life insurance can provide a valuable financial benefit, especially for those with dependents to support. It is an effective way to guarantee that your loved ones will be financially secure should you die.

In order to calculate how much insurance you should get, first you should add up your family's expenses, deducting any income they would receive from pensions, survivor benefits, or from their own employment. A good rule of thumb is to multiply their annual income needs by ten to arrive at the coverage you require. If you are buying insurance for a specific purpose, such as to insure a debt or provide for a pre-planned funeral, then the specific objective should determine the amount of insurance.

Almost all life insurance falls into main categories - term or permanent (sometimes called "whole life" insurance). Both require premiums and both pay the face amount upon the death of the insured. But they have some distinct differences. The primary difference is that "term" insurance is generally less expensive in the first several years of coverage, but then becomes more expensive as you get older.

When you are shopping for life insurance, you should compare not just premiums, but the details of the contract. Bells and whistles can alter the value of coverage substantially, even though policies may look and sound the same on the surface.

It is difficult, but not impossible to change a beneficiary after the death of the insured. But going through a dispute can be a lengthy, and costly process.

No. Death benefits from life insurance policies are free of income tax. However, the death benefit maybe subject to estate and inheritance tax. It is best to consult your tax advisor for advice on your particular situation.

Yes, there are insurance companies that specialize in high-risk applicants, although the premiums for these polices can be expensive.

Once an insurance company receives a death certificate, proving the demise of the insured, the beneficiary usually receives a death benefit within one week. However, if an insured dies within two years of buying a policy, and the insurer conducts a follow-up investigation to see if the insured lied on the application, it could take 30 to 45 days before a death benefit is paid. Most life insurance policies have an insurer that can refuse to pay the death benefit if it finds that the insured lied on his or her application. For example, if an insured dies of lung cancer within two years of buying the policy, and the customer wrote on the application that he or she did not smoke, the insurer may have grounds to deny the claim.

Funeral insurance, also known as burial or final expense insurance, is life insurance you buy to pay for your final expenses. Final expenses can include the cost of a funeral service, merchandise and expenses related to the funeral such as transportation, lodging for relatives, and other similar costs.

Most life insurance policies have a two-year incontestability period that allows a life insurance company to deny a death claim if it discovers that a policyholder lied about a medical condition on his or her application. If the policyholder dies from the medical condition within two years of buying the policy, the life insurer has the right to deny the claim. For example, let's say you were a smoker but you did not disclose it on your application. If you died from lung cancer within two years of buying the policy, the insurer would have grounds to reject your claim.
However, if a policyholder dies after the two-year incontestability period, the insurer could still pay a death claim equal to the amount of life insurance you would have purchased if you had disclosed your medical condition. For example, let's say you paid $500 a year for a $100,000 policy, and you died from lung cancer five years after you applied for coverage. The insurance company may pay your beneficiary a death benefit less that $100,000 because you were not paying the smoker rate.