Life insurance represents a major factor both in personal finance and financial security for Americans. It’s a method of ensuring that should the worst happen, your loved ones will not be at a loss for basic necessities.
However, in spite of its critical nature, many Americans do not prioritize life insurance coverage. This is due to a number of factors, including the complexity of the policies, the grim subject matter, and the different types of coverage needs that arise based on age and health.
To make things simpler, we’re discussing five major points to know and understand about the way life insurance works, how to go about choosing the right coverage for you, and what kind of options are available to you.
1. If anyone relies on you financially, you absolutely need life insurance.
There isn’t really any question of whether or not you need to get life insurance if someone relies on you for income. This obligation goes beyond your current spouse or your children.
Whether you are an ex-spouse, a business partner, a child of dependent parents, or the sibling of a dependent adult, you will want to have a policy in place to ensure that your dependents are cared for in the event of your death. But, even if you don’t have dependents, you might still want life insurance to use as a financial tool, so certainly don’t dismiss the idea out of hand if you don’t have a family that depends on you.
2. Life insurance is a contract.
When you purchase life insurance, you aren’t simply paying for a policy that you will never see the use of. The policy acts as a contract between a life insurance company and someone who has a financial interest in the life and livelihood of someone else. In the event of the death of a policyholder, the life insurance company will pay out claims in the form of death benefits to those mentioned in the policy.
3. There are 4 key players in a life insurance policy.
The insurer: This refers to the insurance company which is responsible for paying out the claims in case of a death.
The owner: The owner of the policy is responsible for paying the premium payments to the insurance company.
The insured: The insured is the person whose life the policy is based on.
The beneficiary: This is the person (or occasionally the trust) that will receive the life insurance claim, also known as the death benefit in the case of the insured’s passing.
4. There are 2 broad types of life insurance.
The first is term life. This is the simplest and least expensive life insurance option that is the most widely applicable. Term life insurance policies are designed to assume that someone will die within a stated amount of time. The premiums are guaranteed for that length of time, but after that point, they will become cost-prohibitive to maintain or you might choose to let it lapse.
The second is Permanent also known a Whole life insurance. Permanent life insurance also uses this probability-of-death calculus but it also includes a saving method that is designed to help the policy exist indefinitely.
5. Life insurance does not have to be expensive.
While there are certainly very expensive life insurance policies out there, life insurance does not have to be a huge expense. You can easily find a policy that gives you the stability you need without committing to a major monthly expense.
With our team’s help, you can find the perfect life insurance policy to suit your needs and adapt to your unique situation. Contact us here for further information on how we can help!