What Is Life Insurance?
Life insurance is essential for those who want to protect and support their surviving family members after the insured has passed away. This type of insurance looks to the future care of family and loved ones and helps to pay for the funeral expenses of the deceased.
In order to keep a policy in place, the insured will pay monthly or annual premiums and a lump sum payment will be distributed to named beneficiaries upon the death of the insured. Life insurance comes in a variety of forms, such as term, whole and universal life insurance. The type of life insurance selected will depend on the ultimate goals of the insured. In other words, how does the insured wish to care for their loved ones upon their death?
What Does Life Insurance Cover?
Life insurance proceeds can be used to cover a wide array of expenses. When an individual dies, they are often leaving family members behind who have depended on them as the primary wage earner for the home and in the midst of their shock and sadness they must ultimately continue to pay the monthly bills. A life insurance policy can cover necessary expenses, such as a mortgage, utilities, loans, groceries, and other daily expenses that need to be paid for as they arise. Funeral costs are also high in price and the policy proceeds can be used to pay for burial services and other accompanying costs.
Basically, proceeds cover expenses that could not be paid since the insured has passed away. The payout will provide peace of mind and payment for much-needed necessities and various expenses.
How Does Life Insurance Work?
The basis surrounding life insurance is to protect those we love when we are no longer there to care for them. When you obtain a policy, you’ll pick a type that fits your needs, pay a monthly premium and provide a cash payout to designated beneficiaries upon your death. Certain policies will be indefinite and so long as you pay your premiums on time you can be guaranteed that your beneficiaries will receive payment. However, other policies will only exist until a certain period in time at which time they’ll expire and no cash payout will be given.
The amount of the premiums along with the amount of the payout will vary depending on the exact policy acquired. Certain policies will have a lower monthly premium but less of a payout while others will be more expensive in the premium department while having a higher distribution to beneficiaries upon the death of the insured.
Types of Life Insurance Policies
Policies are available in many different forms. Three of the main policy types include term life, whole life and universal life.
Term Life: Term life is insurance obtained for a certain length of time with a certain payout amount attached to it and premiums paid along the way to keep it in effect. This type of policy lasts only so long as the term dictates and will only produce a payment if the insured dies during the term specified. After that time, the policy ceases to exist and no premiums are due thereafter and there is no payout from the policy.
Whole Life: Whole life is an insurance policy that doesn’t expire. The insured pays premiums every month or year, depending on how the policy is set up, and upon death the insured’s beneficiaries will receive the amount designated in the policy. Both the premiums and the payout will stay the same as initially stated when the policy began.
Universal Life: With universal life insurance, the insured secures a policy that is also a type of savings account. The universal policy has you paying a premium each month that translates into a savings account at the same time. Any amount that you pay over the premium is cash value. There are three types of universal life insurance that you can choose from if interested in this type of life insurance, including indexed universal life, guaranteed universal life and variable universal life.
Why Is Life Insurance Important?
Life insurance is important for many reasons. This is a type of insurance policy that thinks ahead to the future, not for our own personal needs but for the needs of our loved ones. When individuals obtain life insurance policies, it is thinking ahead to the future to prepare for the unknown and protect those closest to us.
This insurance is especially important for those families where there is one primary wage earner. In this case, having that individual obtain a policy for the protection of the family should anything happen to them is essential. It safeguards one’s spouse and dependents that will allow them to feel at ease and know that should something happen they will be cared for financially.
Is Life Insurance Necessary?
When considering whether or not to obtain a life insurance policy you should consider a few different things. First, do you have family members who you would be leaving behind without a way to pay for their expenses or your funeral payments? Also, are you the primary wage earner in the family? In addition, would your family members have other ways to pay for their necessary expenses? When you answer these questions and consider the answers carefully, you’ll be able to determine if obtaining a policy is the right thing to do in your individual situation.
What to Look for When Selecting a Policy
If you decide that now is the time to start carefully considering life insurance policies, there are a few things to look for in the decision-making process. First, review the various types and see which one is best suited for your needs. Then, inquire as to a premium price to see if the payments will fit within your budget. Also, you’ll want to consider how much the payout will be should your beneficiaries receive payment from your policy to ensure that the amount is what you had in mind and will cover the necessary costs.