What is life insurance?
Life insurance is a type of financial product that pays a benefit to a beneficiary if the insured person dies while the policy is in force. It is typically used as a way for a person to ensure that their loved ones are taken care of financially in the event of that person’s death.
Who life insurance is for
As mentioned previously, life insurance is commonly used by people who want to leave behind a financial legacy for their loved ones. It can also be used to support a business financially in the event of a key person’s death, or for specific financial purposes such as paying off a mortgage.
How it Works
The process of buying life insurance begins by applying for a policy. The insurance company may also require the insured person to undergo a medical exam, so they can determine the level of mortality risk that a person presents. Once approved for the policy, the insured person will begin paying periodic premiums to the insurer in exchange for the guarantee that a benefit will be paid in the event of their death. If the insured person dies while the policy is active, the insurance company will pay the policy’s beneficiary. If the policy owner fails to make the required premium payments, the policy will eventually lapse and coverage will end.
Different types of coverage in existence
The major types of life insurance include term, whole, and universal policies. Term policies provide coverage for a certain number of years, while whole and universal policies are permanent. Permanent policies can accumulate cash value, from which you can borrow. Because of their more robust benefits, permanent policies tend to be more expensive than term ones.
Major benefits of life insurance
The primary benefit of life insurance is the financial peace of mind that your loved ones will have in the event that you pass away. A unique aspect of life insurance is that the death benefit is typically not taxable. While you are still living, universal and whole life policies have a cash value from which you can borrow for any reason and repay on your own schedule.