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Nobody likes to imagine the worst case scenario and think about what would happen if they died. Unfortunately, life is unpredictable and you never know what the future holds for you. That’s why purchasing life insurance is a wise decision. It’s always better to hope for the best and prepare for the worst.
But purchasing life insurance can be daunting for other reasons as well. Not many people are familiar with the ins and outs of life insurance, so it can be a little confusing when deciding to purchase a life insurance policy. So here are the basic facts everyone should know when looking to buy life insurance.
What is life insurance?
Life insurance is a contract between an insurance policy holder and the insured. In exchange for premium payments, the insurance company guarantees to provide a certain amount of money (death benefit) to a designated beneficiary, should the insured person die.
Why is it important?
The main purpose of life insurance is to ensure the future of your family or loved ones in case you pass away. There are considerable advantages to purchasing life insurance:
- pay for funeral costs or any debts one might leave behind such as medical expenses or student loans
- secure the wellbeing of your family by leaving them money to support the lifestyle they are used to
- certain types of policies allow you to create an alternative savings source
- leave an inheritance for your heirs or donate funds to charity
Different types of policies
There are different types of life insurance you can choose from depending on your needs:
Term life insurance – it’s a type of life insurance policy that provides coverage for a specific period, at a fixed rate. It has no cash value, but it’s the most inexpensive option. So if you have a tight budget, you might want to check term life insurance rates and see what you could afford.
Whole life insurance – it’s a permanent life insurance, so it doesn’t have an expiration date and as long as you keep paying your premiums you’ll be covered for life. The payments are set, but they’re more on the pricier side.
Universal life insurance – it’s also a type of permanent life insurance, but the difference is you also have investment savings element. You have the option to change premium value and they also tend to be less expensive.
You can combine life insurance policies
Most people think they have to decide on just one type of life insurance when in reality you can combine them based on how your needs change in time so you can get the most benefits. For example, you can start by purchasing term life insurance and when you decide the time is right, you can convert it to whole life insurance so you don’t lose the coverage. It’s a clever way to manage your life insurance and invest your money wisely.