If you don’t know anything at all about life insurance and how it works, then this introductory primer will answer all your most basic questions.
I will explain the basic differences in the types of policies and how to buy the right policy for your needs.
You will also learn how to decide on how much you need and how to apply for life insurance.
What is Life Insurance?
A life insurance policy is a contract between you and the life insurance company. The terms of the contract are spelled out in the life insurance policy which you will receive when your application is approved.
Basically, the contract consists of an agreement where the life insurance company will pay an amount of money (known as the death benefits) which you (called the insured) specified or selected should you die while the policy or contract is in force.
The amount of money or death benefits, which can be anywhere from $1,000 to $10,000,00 or more, and any amount in between, is the amount of money which is payable by the life insurance company.
These death benefits are payable to a named beneficiary(s) that you select, and will be the person(s) who receive these death benefits. A beneficiary can be one or several individuals and are generally family members such as your spouse, your children or other siblings. When naming a beneficiary, you should always use the full name of a person you designate.
The death benefits will be paid as a lump sum which is non-taxable to the beneficiary.
Your Responsibility as the Insured
The second part of the contract involves your role or obligation. To keep the policy in force, you will be obliged to pay the insurance company a specified amount of money which is called the premium. You must always pay this premium as specified in the policy.
The premium can be paid as a lump sum, as an annual or semi-annual payment, or on a monthly basis.
Reasons to Buy Life Insurance
The main purpose most people life insurance is to be able to provide financially for their families should they unexpectedly die. Some specific reasons to buy life insurance include:
- Income replacement especially if you are the main breadwinner in the family
- Be able to pay for your mortgage if you just bought a home
- Debts such as personal or business loans, credit cards
- Funeral and death expenses
- College or university tuition of your children
- Medical expenses if you develop a life threatening or long term illness
- You have an estate or trust
- Use as charitable donations
How Much Does Life Insurance Cost?
Life insurance is cheapest to buy and most affordable when you are younger and becomes increasingly more expensive as you age. You will be required to either take a medical exam or at the very least answer a medical questionnaire when you apply for a policy.
The cost of life insurance depends on a number of variables such as your age, gender, current state of your health, your lifestyle, whether you are a smoker or non-smoker, your family medical history, your professions and hobbies plus a number of other variables.continue page 2……