Life insurance is a contract between an individual and an insurance company, as per which the insurance company guarantees to pay a specific amount of money (death benefit) to the person you list in the policy (beneficiary) in exchange for a premium you pay.
Reasons to Get Life Insurance
Life insurance helps you in several ways, including:
– Leaving money behind for your spouse or family so that they can continue leading the lifestyle they’re used to.
– Paying for student debts, funeral expenses, unpaid medical bills, and other debts that your family would otherwise have to bear the burden of in the event of your demise.
– Securing a mortgage or other debt when your lender requires you to do so.
– Building wealth by using your insurance with investment options.
Types of Life Insurance
Life insurance is mainly of two categories—term and permanent. Term life insurance is the least expensive option, lasts for a specific duration (usually 10, 20, or 30 years), and has no cash value.
Permanent life insurance is mainly of two types—whole life insurance and universal life insurance. Whole life insurance has a set premium and remains valid as long as you keep paying these premiums. Universal life insurance offers investment options, and its premiums may change over time based on how you handle factors like cash values, investments, and other options.
Combination versus Convertible Life Insurance
Combination life insurance allows you to have a payout in circumstances apart from death. Convertible life insurance lets you convert a term life insurance policy into a whole life insurance policy, which helps you avoid losing your policy after it expires.
How Much Life Insurance Do You Need?
The coverage you need depends on why you’re purchasing it. If you want to financially protect your family in the event of your death, you’ll have to consider several personal factors to determine how much life insurance coverage you should choose. These factors include what savings and investments you have, and what your family’s expenses would be upon your death (funeral expenses and hired help at home).
Costs of Life Insurance
The cost of life insurance can vary from a few dollars to several hundred depending on your age, the value of the death benefit, whether the policy has cash values, and the like. Typically, the younger and healthier you are, the cheaper life insurance is.