What you need to know about life insurance
If you were to pass away unexpectedly, you would want your family to be financially secure without you. Having a life insurance policy helps to do just that.
What is it?
An insurance policy for your life is unlike other insurance policies in one big way. Instead of providing benefits to you, it usually provides benefits to someone else after you die. There are some types of policies that provide limited benefits while you are alive, but the main benefit of a life policy is to pay a benefit to your beneficiaries after your death.
Who is it for?
A life policy can be a good idea for just about anyone, but it is most important for people who have others who are dependent on them financially. That might be a parent, a person with a spouse who doesn’t work or someone who takes care of a vulnerable sibling or parent.
How does it work?
Life policies have a set death benefit and they pay out a lump sum payment to the beneficiary or beneficiaries who are named in the policy after the insured person’s death. In some cases, some policies may provide living benefits to the insured person while he or she is still alive, and if those are used, they are subtracted from the death benefit. Life policies, like other insurance, can have exclusions, which means they won’t pay out if death is caused by certain means, such as suicide.
Different types of policies
There are two main types of life insurance: term and permanent. Term policies provide you a set amount of coverage for a set time period, say 30 years. If you pass away within the term period, the policy pays out. If you don’t, the policy expires. Permanent insurance stays in force for as long as you keep up with the premiums. It is further broken down into categories, such as whole life, universal life and variable life.
The major benefit to having a policy from a life insurer is the potential for a payout to your loved ones at your death. Building a cash value in certain policies also is a benefit.