Life insurance is a type of financial product that pays a sum of money to your chosen beneficiaries when you die. The money can be used to cover your funeral costs, pay off your debts, replace your income, or support your loved ones.
What is life insurance?
Life insurance is a contract between an individual and an insurance company where there’s agreement to pay a regular amount of money called a premium to the insurance company. In return, the insurance company agrees to pay a lump sum of money called a death benefit to specified beneficiaries when the person die.
Types of Life Insurance
There are two main types of life insurance: term life and permanent life.
- Term life insurance covers you for a specific period of time such as 10, 20, or 30 years. When the client dies within the term, the beneficiaries will receive the death benefit. In a situation where the client survive the term, the policy expires and he would get nothing back. Term life insurance is usually cheaper and simpler than permanent life insurance.
- Permanent life insurance covers clients entire life, as long as the payment for premiums continues. It also has a cash value component which is a savings account that grows over time. It is usually more expensive and complex than term life insurance.
How does life insurance work?
Are you ready to buy a life insurance policy, then you need to go through the following steps:
- Choose the type, amount, and duration of coverage that suits your needs and budget. You can shop around to compare quotes from different insurance providers
- Proceed to fill out an application form and provide some personal information such as your age, health, lifestyle, and family history. You may also need to take a medical exam or answer some health questions.
- Wait for the insurance company to review your application and decide whether to approve or reject it. They may also offer you a different rate or coverage than what you applied for, based on your risk profile.
- If your application is approved, you will receive a policy document that outlines the terms and conditions of your coverage. You will also need to pay the first premium to activate the policy.
- If you die while the policy is in force, your beneficiaries will need to file a claim with the insurance company and provide proof of your death such as a death certificate. The insurance company will then verify the claim and pay the death benefit to your beneficiaries.
Why do you need life insurance?
Life insurance can provide financial protection and peace of mind for you and your family. Here are some reasons why you might need life insurance:
- You have dependents who rely on your income such as a spouse, children, or aging parents. Life insurance can help them maintain their standard of living and cover their living expenses, education, or childcare costs after you die.
- You have debts that would be passed on to your heirs such as a mortgage, car loan, or student loan. Life insurance can help them pay off these debts and avoid financial stress or legal issues.
- You want to leave a legacy or a charitable donation to your loved ones or a cause that you care about. Life insurance can help you achieve your estate planning or philanthropic goals and reduce the tax burden on your heirs.
- You want to cover your funeral costs and avoid burdening your family with the expenses. Life insurance can help you pay for your final arrangements and settle any outstanding bills or taxes.
