When most people think about life insurance, they imagine young couples who want to leave something behind for their kids. However, the more I learn about it, the more I realize that life insurance is also important for grandparents. You might find yourself thinking the same. So, how does life insurance work once you’ve reached a certain age?
How Does Life Insurance Work?
Life insurance works like most other insurance policies, except you have a lot more options. You pay a monthly premium and, in exchange, you’ll have a guaranteed payout for your loved ones once you pass.
However, just like other insurance policies, you have a lot of decisions to make about your life insurance policy. One of the first things people want to know when asking, "How does life insurance work?" is the cost.
The truth is, the younger you are when you buy life insurance, the less you’ll pay. But don’t let that keep you from asking how life insurance works once you’re a grandparent.
If you do some research and think carefully about your options, you can find an affordable policy for your needs.
Why Grandparents Need Life Insurance
Times have changed, and these days, grandparents play a bigger role in helping their adult kids navigate life. And once their kids have children, they also play a role in rearing them. That’s why so many grandparents are asking: How does life insurance work, exactly?
They realize they need to do something to continue to help their kids once they pass.
But in addition to leaving them some cash, there are a few other reasons why a good life insurance policy is the perfect gift grandparents can give their kids and grandkids. (Other than the traditional gifts for grandkids!)
Here are five of them.
Give Them Green While You’re Still Here
When asking, how does life insurance work, you will learn about whole life insurance policies. These policies accumulate a cash value that grows larger over the years. And you can actually take out this cash while you’re still alive, believe it or not.
The money might come in handy, too. It can help your adult child or grandchild get a head start on life. Depending on the size of the policy, they could use the cash to buy a house, pay for college, start a business, or pay off their debt.
Keep in mind that if you take out a loan on your whole life insurance policy, it will accrue interest and decrease the amount of the death benefit by the amount of the loan and the interest.
You Pay, They Play
As long as you pay your premiums, your life insurance policy will last and ensure that you leave your loved ones a cash legacy when you’re gone. Unlike other types of gifts, a life insurance policy won’t fail or break — it’s there when they need it.
It’s Not Too Taxing
Current laws make it possible for you to borrow against the cash value of your life insurance policy without suffering any tax consequences. Also, if you pass and leave your loved ones a death benefit payout, they won’t have to pay taxes on it.
That’s a great reason for asking, "How does life insurance work for grandparents?"
Today’s Rates Are Lower Than Next Year’s
How does life insurance work? By giving you a lower premium the sooner you sign up for it. In other words, you’ll never have access to as low of a premium as you do today. Because, let’s face it, next year you will be a year older.
That means even if you waited until you were a grandparent to ask how life insurance works, it’s not too late. If you buy a policy today, you will pay a lower premium than you would if you bought a policy 1, 5, or even 10 years from now. And if you buy a whole life insurance policy, the premium will stay the same for as long as you have the policy.
And that makes leaving something behind for your loved ones more affordable.
You Can Change Things Up
If after asking how life insurance works for grandparents you decide that you want more coverage than you initially bought, you can increase it by purchasing a new policy at predetermined dates.
That’s regardless of how your health or circumstances have changed. Just be sure to include a Policy Purchase Option (PPO) rider on your policy.
In other words, if your grandchild decides he wants to become a doctor, or you want to ensure your adult child’s stability, you can increase the payout amount of your policy without having to be approved by underwriters.
Types Of Life Insurance For People Over 50
Are you asking, how does life insurance work for me? If so, here are five types of insurance for grandparents that you should consider. Each has its pros and cons, and your budget and life circumstances will determine which one is the right choice for you.
When asking how life insurance works, you’re sure to hear about term life insurance. It's typically the most affordable life insurance, but it has some drawbacks for grandparents. For example, you buy this type of insurance for a set period of time, and after that, you have to requalify for it.
If you buy a 10-year term life insurance policy when you’re 50 and healthy, the policy ends when you turn 60. At that point, you will need to go through underwriting again and pay the rates for a 60-year-old instead of 50-year-old rates. Also, if your health has declined, you may not get approved for a new policy.
Whole Life Insurance
Whole life insurance is one of the best products for grandparents who are in good health. These types of life insurance policies accumulate cash value, and the premiums stay the same the entire time you have the policy.
You can buy a whole life insurance policy, and it will stay in effect until you pass as long as you pay the premiums.
The premiums are higher on these types of policies, but they offer stability and the confidence that you will leave behind a cash payout for your loved ones.
Universal Life Insurance
A universal life insurance policy also offers a cash payout, but the rate is tied to a designated market index. That means the cash value will go up or down, depending on how the market does.
You can use this type of insurance policy to leave a cash payout or to borrow against it to help your grandchildren go to college or for some other large expense.
Guaranteed Life Insurance
People who aren’t in great health often ask, "How does life insurance work for people who have medical issues?" And they often hear about guaranteed life insurance policies. These policies are exactly what you think: They offer guaranteed acceptance regardless of your health.
You won’t undergo any medical underwriting to get this type of insurance policy, but you will pay more in premiums because the insurance company is taking a chance on your health. Also, many of these types of policies don’t go into effect until a year or two after the policy is initiated.
Final Expenses Life Insurance
What is your reason for asking, "How does life insurance work?" If it’s because you only want to ensure that your burial and final expenses such as medical bills, outstanding debt, and utility payments are covered, final expenses life insurance might be the right kind of policy for you.
This type of policy only requires you to answer a few medical questions, but not undergo a medical exam. And the death benefits are lower — typically between $5,000 and $25,000. It's a type of whole life insurance policy, but it doesn’t accumulate cash value or allow you to leave large cash payouts for your loved ones.
Which Life Insurance Policy Is Right For You?
How does life insurance work? By now, you should have a good understanding of what you're looking at. After reading about all of these answers to your question, it’s time to ask yourself which type of policy is right for you. Here are three questions you should ask to help make the right decision.
How Much Does It Cost?
If you’re a grandparent, you may be retired and live on a fixed income. Or you may have made great investments over the years and have it easy in your financial life. You should think carefully about your budget and choose the life insurance policy that is right for you.
And if you struggle to afford the policy you want, ask your adult kids to pitch in. After all, they’re the ones who will eventually benefit from it.
Don’t Leave It Behind
If you have debt, you should take this into consideration when asking, "How does life insurance work?" You don’t want to leave behind debt for your loved ones to pay. So, your life insurance policy should be large enough to cover all of your debt.
Leave Them A Legacy
Finally, you may want to leave behind a large cash payout for your loved ones. And if you do, take that in consideration when choosing your policy. Whole life insurance policies are the best option for this. But you can also look at universal life and guaranteed life insurance policies.
Answered: How Does Life Insurance Work?
Did we answer your question about how life insurance works? Life insurance policies work differently for each of us, and as a grandparent, you have some serious things to consider. Will your life insurance policy set up your grandchildren for success? Or will you simply ensure that all of your outstanding debt and funeral costs are covered?
Do you already have a life insurance policy? We would love to hear about how you decided which one to choose and how it’s impacted your plans in the comments below!
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