How Does Life Insurance Work?
Are you planning to apply for life insurance for the first time ever? To some people, the entire concept of life insurance may seem strange. But life is unpredictable, and while we all hope for the best, it's essential to prepare for the unexpected, especially when it comes to safeguarding the financial well-being of our loved ones. This is where life insurance steps in as a backup plan to provide a financial safety net in times of need.
What is Life Insurance?
A life insurance contract between a policyholder and an insurance company is designed so that the policyholder’s beneficiary can have financial protection in the event of the insured’s death. Often, life insurance can help families meet their financial needs when one of the family’s breadwinners passes away unexpectedly. By paying a regular premium to an insurance agency, an individual can rest assured that their family will have the financial support they need.
How Does Life Insurance Work?
Once an individual decides to purchase a policy, the insurance company usually determines the premium cost, based on factors like the insured’s age, health, occupation, and general lifestyle. Once this assessment is complete and the premium rate is set, the policyholder usually needs to start making regular premium payments on a monthly or annual basis to keep the policy in force (active).
In the event of the insured's death while the life insurance policy is active, the beneficiaries named in the policy are entitled to receive the death benefit. This payment is typically used by the beneficiaries to cover various financial needs, such as funeral expenses, mortgage payments, debts, daily living expenses, or long-term finances.
What is a Beneficiary?
When an individual sets up their life insurance policy with an agent, they’ll need to designate a beneficiary. A beneficiary is someone who will receive the life insurance payout that occurs in the event of the insured’s death. Beneficiaries are often other individuals, like family and friends, but can also be trusts or organizations.
What Does Life Insurance Cover?
When one of the main breadwinners in your family passes away, some of the day-to-day expenses may become difficult to manage. Life insurance is designed to alleviate some of this burden. In addition to rent, car payments, and groceries, life insurance can also be used to pay for funeral and burial expenses.
How Much is Life Insurance Per Month?
There are a number of contributing factors that may affect how much life insurance you’ll need and how much you’ll pay for it each month (or each year, depending how your policy is set up). Younger individuals typically pay lower premiums because they are statistically less likely to die prematurely compared to older individuals. Factors such as chronic health conditions, tobacco use, and family medical history can impact the cost of coverage. Certain lifestyle factors and habits (smoking and hazardous occupations) can also affect your premium.
What Happens When You Stop Paying Life Insurance Premiums?
When you stop paying your life insurance premiums, several things can happen depending on the type of life insurance policy you have and the specific terms and conditions of that policy. Often a pause on payments results in a lapse in coverage, meaning that beneficiaries are no longer entitled to receive the death benefit if you pass away. Some insurance policies have a grace period, but this varies between policies.
Can You Have More Than One Life Insurance Policy?
Yes, you can have more than one life insurance policy. People sometimes choose to have multiple life insurance policies to ensure a more adequate payout, allowing families to continue paying off significant charges and debts. In some scenarios, employers may even offer an affordable policy to employees. However, when it comes to supporting two policies at once, it’s a good idea to consider the combined monthly costs before making a decision.
Is Life Insurance Worth It?
Applying for life insurance serves as a safety net whose value depends on an individual’s financial situation and responsibilities. Life insurance can provide valuable financial protection for many people, but it may not be necessary or suitable for everyone.
It's important for someone to carefully assess their financial situation and long-term goals when considering life insurance. The type of coverage and the amount of coverage needed to support their beneficiaries may vary from individual to individual. If you’re unsure about life insurance or setting up a policy, reach out to one of our independent insurance agents at World Financial Group to see what a policy might look like for your family.
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