Even though everyone eventually passes away, people are sometimes hesitant to purchase life insurance. They may feel as though it is an unnecessary expense. However, life insurance helps ensure that your loved ones are well taken care of in your absence. Here are a few questions and answers about life insurance to help you better understand it:
Is there more than one type of life insurance?
Life insurance has two basic subcategories: permanent life insurance and term life insurance. Permanent life insurance includes a cash value. This value is based on an investment feature. With whole life permanent life insurance, the investment is similar to that of a CD or bond. However, with variable life permanent life insurance, the investment is more similar to that of a mutual fund.
Term life insurance is often the most popular option. It tends to be less expensive and less complicated than permanent life insurance. The amount of the premium is based on the risk or how likely it is for you to pass away during the term of your policy, which is usually set at 10, 15, 20, or 30 years. During the term of the policy, the premium remains the same.
What are the common terms referenced in a life insurance policy?
Your life insurance policy uses certain terms to define the roles of each entity involved in the policy. They include the following:
- The Policy Owner- The person who owns the policy is the individual who is responsible for paying the premiums.
- The Insurer- The insurer refers to the insurance company that is providing the life insurance coverage. The insurer pays the claims when the insured person passes away.
- The Insured- The insured is the individual who is covered by the life insurance policy. In some cases, the insured and the policy owner are not the same person.
- The Beneficiary- The beneficiary is the person who receives the benefits of the policy. Once the insured passes away, the death benefit is paid to the beneficiary.
Doesn't life insurance simply increase your net worth?
Since life insurance is only paid when the insured passes away, it is best to not regard it as a way to increase your net worth but rather as a way to help provide for the people that you leave behind. Not only can it be used to cover funeral expenses, but life insurance can also help pay for expenses associated with living, such as mortgages, credit card debts, and college tuition.
Once you pass away, your income is lost. As a result, without life insurance, your loved ones may not be able to continue their current lifestyle.
For more information about life insurance, contact a life insurance company like Woodmansee Insurance Inc.