Understanding Life Insurance
Though not pleasant to ponder, it is still important ask what might happen to your family if you were to die unexpectedly. Would your loved one have enough resources to continue live their lives comfortably? Conversely, if someone whom you loved were to suddenly pass away, do you have the money on hand to handle funeral costs, etc.? Obtaining good life insurance coverage will certainly not stop death, but it can hugely help with the many financial issues that come along with it.
How It Operates
When you purchase a life insurance policy, it can greatly compensate your named beneficiaries, normally family members, should you die. The amount the beneficiary acquires, otherwise known as the “death benefit,” is computed by the level of policy protection one chooses. Those receiving these benefits are free to spend the funds as they wish. Policyholders pay premium payments either monthly, semi-annually or yearly. The premium paid is calculated by the level of the death benefit and type of policy one chooses.
Types of Policies Offered
A whole life plan is one that requires a policyholder to pay premiums for his or her entire life. This kind of life insurance is more expensive but it offers a cash value that can grow over time, along with the death benefit. Additionally, one who obtains this policy is also allowed to borrow funds against the policy, (agreeing to pay it back). This, of course, is a benefit for those who may find themselves financially challenged at some juncture but do not want to take out a typical high-interest loan. Understand that if the loan is not paid back, the death benefit amount will be decreased accordingly. Also, as funds accrue over time, one’s whole life premiums can also be cut.
A term life policy will stay in effect for only a certain period of time, usually being offered in “terms” of 5, 10, 15, 20, 25 or 30 years. Dissimilar from the previously mentioned whole life policy, term policies only provide death benefits and premiums remain fixed throughout the term’s period.
A universal life policy is similar to a whole life policy but offers even more flexibility. A universal life policy provides the individual the option to make changes to the contract terms, the amount of the death benefit and the premium, if necessary. Given this flexibility and the possibility of the policy value growing over time makes this usually the costliest of these policies.
Normally, the main reason for carrying life insurance is to help in handling burial and funeral costs. However, many people wish to carry policies that offer more, such as bigger death benefits so as to assure that loved ones will have access to enough money to continue to live in the same manner as when the policyholder was alive and able to provide for his or her loved ones.