What is Life Insurance?
Life insurance is one of the most valuable purchases you’ll ever make. Just as we buy car insurance or home insurance to protect us from the consequences of damage to or loss of an asset, we have life insurance to protect against the financial consequences that can result from our own deaths. The loss of income resulting from the death of the family’s primary income earner can have compounding effects on financial dependents. For example, surviving dependents may struggle to maintain their former lifestyle, there may not be money to pay for college fees, and outstanding mortgage payments still need to be paid. All of this can create stress and fear on top of the financial pressure faced by the deceased’s dependents.
The essence of life insurance is an agreement between the insured person and the insurance provider. The insured person pays premiums to the insurance company, and in return, the insurer will pay out a benefit if the insured person passes away while the policy is active.
Who Needs Life Insurance?
Life insurance is something every adult should seriously consider. We can’t predict the future, and we have to plan for the unexpected before it happens. We can’t afford to wait until tragedy strikes to figure out how to respond and purchasing life insurance is one tool you can use to secure peace of mind for the future. That doesn’t mean that life insurance is a necessity for everyone, just don’t dismiss it because you think “I’m too young” or “I’m healthy.”
To decide if you need life insurance, you should carefully evaluate your current and future financial circumstances and obligations. Luckily, you don’t have to do this alone. Tumens life insurance agents can guide you through this process, helping you to make the best assessment of:
What financial obligations would you want to be taken care of after your death? This can include settling any outstanding debts but also ensuring that your financial dependents are provided for if you are no longer there to support them with your income.
To give you a general idea, you should contemplate purchasing life insurance if you answer “yes” to any of the following questions:
Do you have an outstanding mortgage on a home?
Do you have financial dependents? (This could include your spouse or domestic partner, children, or other family members or acquaintances who rely on you for financial support)
Do you have any other debts which could be passed on to your estate after your death?
How Does Life Insurance Work?
The basic principles of life insurance are quite simple. First, the policyholder and insurance company sign an agreement that lays out the terms of the policy. The agreement will specify certain details like what type of life insurance policy is being provided, the total policy coverage value, the life insurance rate (or premium), and, if applicable, the term length (the duration of the policy). The policyholder then begins paying the insurance company a regular premium, continuing to do so either until the life insurance policy expires or the policy holder’s death.
If the policy is still in effect when the policyholder dies, the insurance company pays out the benefits specified according to the policy terms. If the policyholder is still alive when the policy expires, the insurance company does not pay out any benefit.
Remember that there are several types of life insurance. Each type of life insurance has its own advantages, and none is inherently “better” than the others. Which type of life insurance is most suitable for you will depend on your own circumstances and preferences, so explore all the options before committing to one type of policy.