You may be familiar when it comes to insuring things such as your home or car against damage or loss. However, have you ever considered what is the most important thing to insure?
The most important asset that you have is yourself. Though premature death is unlikely, there could be serious financial risks and hardships for the people that you love and leave behind if you neglect having life insurance protection. Therefore, it is important to understand some of the basics about how does life insurance work for you.
Life Insurance 101
Life insurance is simply a contract, or policy, that you choose to have with an insurance company. You agree to pay a premium, or fee, and the insurance company promises to pay a lump sum, tax-free amount to your chosen beneficiaries after your death. For example, you may decide to purchase a $100,000 insurance policy. If you die, your beneficiary will receive $100,000. It is as simple as that, or is it?
There are many factors that will determine the cost of your life insurance policy. Some of the factors include your age, sex, the death benefit amount, health, and so forth. Some insurance companies require you to have a simple health exam before they agree to the amount of the policy. You can purchase a life insurance policy from a registered insurance agency or you can purchase a policy online.
Obviously, it is your decision to purchase a life insurance policy or not. However, a life insurance policy can be beneficial to meet certain financial needs. Some of those financial needs include income replacement, repayment of debts, child care and education, estate planning, or funeral expenses. A life insurance policy can cover all of the above requirements or it can be specialized to cover only one or a selection of more than one.
One of the key considerations that will need to be predetermine is how much coverage will you need? There are various ways to calculate this amount such as determining the education costs for your children, determining approximate final taxes and expenses after death, calculating the total amount to pay off all of your debts, and calculating the amount that your family will require to maintain its current lifestyle.
There are 2 primary categories of life insurance. They are permanent life insurance and term life insurance. A term life insurance policy will provide life insurance protection for a specific number of years. On the other hand, permanent life insurance protection provides lifetime security and protection. The permanent life insurance policy has 3 main policy types including universal life, full life, and term to 100 insurance.
The most common and affordable type of insurance is term life insurance. This type of policy will have a specified renewable term that you choose. A typical term life insurance policy will have terms of 5, 10, 15, 20, or 25 years. The coverage will be guaranteed until a specified age, which is normally between 60 and 75.
The payments on term insurance are cheaper than permanent insurance. It also has the advantage that the term can be renewed even if you are in poor health. Therefore, how does life insurance work and do you need it are 2 things that you should seriously think about.