How Does Life Insurance Work?
Life insurance is all about caring for those who depend on you, and getting peace of mind knowing your loved ones will be financially covered if the unexpected were to occur.
If you’re wondering how life insurance actually works, you’re not alone. Here’s an overview of what you need to know.
Knowing the Basics
For starters, life insurance protects the special people in your life by providing them a financial safety net in the event that you passed away. It compensates them for your lost income and other ways you financially provide for their needs, everything from day-to-day necessities like groceries and electric bills, to bigger ongoing expenses like mortgages or tuition payments.
Pricing is determined based the amount and length of coverage you select, as well as your age, gender, health, medical history and other individualized factors.
Once you’ve purchased a policy, you pay fees — known as premiums — on a regular basis. And if something happens to you and you’re no longer in the picture, the insurance company will pay your loved ones — the beneficiaries — the amount of money you specified in your policy.
Different Types to Consider
When you’re shopping for life insurance, you’ll want to explore the two main types: temporary and permanent. Temporary life insurance provides coverage at a lower initial cost. This includes term life insurance, which remains in effect for a specific term or length of time at a set premium. Term life is popular among those who want the lowest-costing coverage options to help pay off mortgages, loans or other debts.
Permanent life insurance provides protection for the length of your entire life, not just part of it. This includes whole life insurance, with coverage for your whole life and premium payments that remain the same regardless of changes in your health. Similarly, universal insurance covers your whole life, but has flexible premiums that you can adjust as your circumstances change. Both whole and universal life policies can build cash value that you can access during your lifetime. Nice! Whole and universal policies are popular among those who want longer-term protection, and the ability to build the cash value of the policy over time.
Getting life insurance is one of the best decisions you’ll ever make. It’s a smart, affordable way to make sure those you love have the support they need.