The insurance coverage for your home and car has been checked off your to-do list, but the decision to sign up for life insurance is still lingering at the back of your mind. You’re not alone in this dilemma. Only 52 percent of Americans have life insurance.
If you have loved ones dependent on your income, it’s crucial to understand how life insurance might help them if something happens to you. Here’s everything you need to know about life insurance, including how it works, how much it costs, and which kind is best for you:
What Is Life Insurance?
Life insurance is a contract that secures your family’s financial affairs after you die in exchange for monthly payments to your insurance provider. This agreement is signed between you and an insurance provider. The insurer pays a tax-free death benefit, e.g., a lump sum amount, to your surviving family members in the event of your death.
To be honest, it’s not a pleasant subject to think or talk about. However, remember that you get life insurance not for your own benefit but for those you care about. You want them to be financially secure so they don’t have to worry about money when you’re gone.
What Are The Basics Of A Life Insurance Policy?
There are a few phrases that you should be familiar with to grasp how life insurance coverage works. Whichever type of coverage you purchase, life insurance is composed of the following eight components:
1. The Insurer
Life insurance is available only through particular businesses, which obtain authority from state insurance authorities.
The insured party. Life insurance pays out the death benefit when the insured person dies.
Owning and paying the premiums on a life insurance policy makes you a policyholder. Generally, the policyholder and insured are the same people. But that isn’t necessarily the case with everyone, every time.
The policy may designate just one or many beneficiaries.
The insured pays monthly or annual premiums to ensure that a policy is active (or “in force”). If you cease paying premiums, the insurer will cancel your policy.
6. Death Benefits
The death benefit is the sum of money paid out following the insured’s death. Life insurance becomes effective immediately upon payment of the first premium, ensuring that policy recipients get the death benefit directly.
7. The Policy Length
This can be for a specified period of time (e.g., 10 or 20 years), or it can be permanent – a policy that lasts as long as you continue paying the premiums.
8. The Cash Value
Permanent life insurance products build a cash value that can be borrowed against or cashed out over time. A term policy does not have any financial value until the policyholder dies.
Different Types of Life Insurance
Life insurance is categorized into two types — permanent life insurance and term life insurance. Your decision to choose term over permanent or vice versa may vary based on your needs and circumstances.
Term Life Insurance
Term life insurance is the most straightforward and preferred type. The insurance company pays only if the insured person dies during the policy’s term, which is typically 1 to 30 years. The majority of term insurance contains no additional benefit provisions. Term life insurance plans are classified into two broad categories: level term and decreasing term.
- The phrase “level term” refers to the fact that the death benefit remains constant throughout the policy’s duration.
- The phrase “decreasing term” refers to the death benefit decreasing over the duration of the policy’s term, typically in one-year increments.
Permanent Life Insurance
This type of insurance pays a death benefit independent of a specific time period. Regardless of your age, your beneficiaries will get a death benefit – even if you live to be 100. Permanent life insurance is classified into two broad categories: standard whole life and universal life.
Whole life insurance is more straightforward because the premium is fixed for the duration of the policy, the death benefit is specified, and the cash value increases at a fixed rate. While universal life insurance may be less expensive, death benefits, cash value growth rate, and premiums can all vary, complicating the policy.
What Is the Significance Of Life Insurance?
Most Americans do not have enough emergency funds to last three months, let alone years. That is where life insurance coverage comes to the rescue. Even if you do not have $1 million in the bank, you can safeguard your family with life insurance. Life insurance offers a contingency fund for as little as $20 per month, ensuring that you don’t leave your family in a financial bind following your death.
Life insurance is well worth the investment to secure the future of your family, especially if you choose the right type. If you’re seeking the best option, term life insurance can serve you and your family well. This is because life insurance should serve as a safeguard and source of security for your family.
Reach Out To Our Life Insurance Specialists
To discover more about life insurance and the benefits associated with it, contact the financial advisors at Matador Insurance Services. Our team has substantial knowledge and experience with life insurance policies. We can assist you in understanding every aspect of life insurance and assist you with your most suitable options.