So, you are somebody who loves planning your expenses. You have got your auto and home insurance policies all set up so that you can take care of any unexpected expenses. Have you considered life insurance yet? You are not alone, few people carry adequate life insurance to take care of their expenses once they are gone.
Maybe you have been thinking of getting life insurance. Or maybe it is not on the radar yet because life keeps you so busy. However, if your loved ones depend on you for income, it is worth knowing what life insurance is and how it works to protect your loved ones if something happened to you.
What is life insurance?
At a very basic level, life insurance is a legal agreement that you enter in with your insurance provider. The agreement states that you will make some monthly payments to get life insurance cover and the insurer will pay the cover amount to your loved ones if you die.
Now, we agree that death is not the most fun topic to discuss. But think of it this way: You get life insurance cover not just because you are going to eventually die. You get life insurance for the sake of your loved ones who are going to live even after you pass away – and it is up to you to make sure that they are financially secure even after you are not there to take care of their money needs.
Life insurance cover can be used to make up for the loss of income, taking care of funeral expenses, pay for any existing debt and go towards taking care of financial needs that may arise after you are gone. Once you put your signature on that dotted line and start making monthly payments, what you really end up with is the peace of mind –you know that you have taken care of providing your loved ones with financial support even after you pass away.
How does life insurance work?
A life insurance document is not one of the most fun reads, it is rather dull and boring. However, you need to know just a few key terms related to life insurance to assist you in understanding how it really works:
- Policy: This is the contract that you enter in with your insurance company.
- Premiums: These are the monthly or yearly installments that you need to make payments towards for owning the insurance policy.
- Policy holder: Policyholder refers to the person who owns the life insurance policy (the insured person). This usually refers to you, but you can also buy a life insurance policy for some other person.
- Death benefit: This is the money that the insurance company will pay in the event of the death of the policyholder.
- Beneficiaries: These are the people that you have chosen to receive the death benefit of your life insurance policy (for example your children or spouse, but it can be anyone you nominate on your policy)
To sum it up, once the policy holder starts paying the premiums, the life insurance company guarantees that they will pay your beneficiaries the death benefit when you die.
Types of life insurance
Life insurance comes in two basic forms:
- Term life insurance: This coverage is valid for a specific time. If you die at any point during this time, your beneficiaries will be paid the death benefit of your policy.
- Permanent life insurance: This coverage lasts during your whole lifetime. It comes in the form of minor variations like universal life, whole life and variable life insurance.
So, now that you know what life insurance is and how it works, it is time for you to act and get your life insurance cover.