Life insurance is a form of insurance policy that insurance providers offer. In exchange for monthly premiums, the insurer pays out a fixed amount after the policyholder dies. This amount goes to the beneficiaries that you, the policyholder, name — usually including children, spouses, or other family members. Life insurance policies can serve as a financial cushion for the dependents of policyholders.
There are terms such as the death benefit, premium, and cash value in life insurance policies.
Death benefit – refers to the fixed amount the insurance company gives the beneficiaries in the event of the policyholder’s death. The policyholder must choose the death benefit amount based on the estimated quantity the beneficiaries need to cover their future needs. The insurance company will let you know if there’s an insurable interest and whether or not you qualify.
Premiums – refer to the monthly payments the policyholder must pay for insurance.
The premium cost is partly determined by how likely it is for the insurance company to pay the death benefit based on their life expectancy. Some factors influence life expectancies, such as age, gender, occupational hazards, and high-risk hobbies. The higher the death benefit amount, the higher amount the insured will pay.
Cash value – serves as a type of savings account that the insured can use while alive. The policyholder can also use it to pay the premiums or to purchase additional insurance.
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Types of Life Insurance
There are two primary types of life insurance, though some variations of the two life insurance types exist. The two types of life insurance policies are term life insurance and permanent life insurance.
Term life insurance is active for a limited period, such as 20 or 30 years. This type of insurance doesn’t accumulate cash value, and if the policyholder dies during the term period, the beneficiaries will get the death benefit from the insurance company.
If the policy expires, then the insured can choose to purchase a new one or reassess. Permanent life insurance is costlier than term life insurance. It also has features like cash value.
Permanent life insurance pays a death benefit if the insured dies at any point and also serves as an investment account. Permanent life insurance remains active until the policyholder’s death or if they stop paying the premium.
Who Needs Life Insurance?
Generally, if you have financial dependents such as a spouse, kids, or other relatives, you should consider purchasing a life insurance policy. For parents who have minor children, a life insurance policy is a good choice as the death of one or both parents may result in financial difficulties for the children. Also, parents who have adult children who need lifelong care should consider buying a life insurance policy to help meet the child’s needs.
Others who should consider getting life insurance include adults who own a property together, people with families that cannot afford funeral costs, couples who are both pensioners, seniors with adult children, etc. The bottom line is this: Life insurance can provide financial support to your dependents after you pass away.
Contact Better Place Insurance Group
Have questions? Feeling overwhelmed? Reach out to Better Place Insurance Group in Lakeland, Florida, for more about insurance policies! We can help you find the right life insurance plan at the right price.