By Aniket Bose. Edited by Arjun Chandrasekar
Life insurance is a very common asset that is a part of many people’s financial planning over the long run. The best way to protect a loved one is by purchasing a life insurance policy so that they have access to the financial support they need when the person buying the policy dies. For instance, suppose someone buys a life insurance policy for a family member covering their mortgage, regular bills, education, etc.
Basics of Life Insurance
Life insurance is essentially a type of insurance contract. When someone has decided to purchase life insurance, they need to understand how it works and how their beneficiaries can obtain the benefits of the life insurance policy they bought for them. If the person purchases the life insurance, then the company is capable of paying out a death benefit for the people that the dead person bought the policy for.
Some life insurance policies offer their consumers both living and death benefits. A living benefit allows the consumer to tap into their own policy’s death benefit while they are still alive whereas the people that the policy was purchased for, can receive the death benefits of the person who purchased the policy once they die. This type of situation can be beneficial when the person who bought the life insurance policy is very ill and requires funds to pay for their medical care.
According to the owner of Life Cycle Planners LLC, Ted Bernstein, “Some life insurance companies have designed policies that allow their pay holders to draw against the face value of the policy in the event of a terminal, chronic or critical illness. These policies enable the policyholder to be the beneficiary of their life insurance policy. When someone decides to purchase life insurance, they need to consider how much coverage they need, whether term life or permanent life policy makes more sense for them, what they’ll pay for premium, and who will be a part of the life insurance policy.
Regarding coverage amounts, it helps use a life insurance calculator for choosing a death benefit for the person that bought the life insurance policy. When someone purchases a term life insurance policy, it will cover them for a set period of time, whereas a permanent life insurance policy will cover them for as long as the premium fees are paid. The term life insurance policy is typically cheaper than the permanent life insurance policy, but the permanent life insurance policy can offer its consumers certain benefits such as cash value accumulation. The premium costs of life insurance depend on the type of policy that someone purchases, the amount of death benefit, the overall health of the consumer, and the people that the consumer includes in their policy. In some scenarios, life insurance companies will have the consumer complete a paramedical exam as a part of the underwriting process.
In short, life insurance policies offer both the policyholders and their close friends and family without having to worry about financial difficulties in the case of someone’s death. Life insurance is also known as a contract between an insurance policyholder and the company that issued the policy, where the policyholder guarantees to pay a specific amount of money in premium payments to the company, and in exchange, the company will pay an amount of money known as a death benefit, to the people included in the policyholder’s life insurance policy, after they die. This was just an introductory article about the basics of life insurance — and if you found this informative, consider liking the post and leaving a comment!