What you need to know about life insurance
Life insurance isn't just for old people. That's one major thing you need to know about the product. In fact, it makes a lot more sense for younger people to get a life policy rather than waiting until they are older. Here's all you need to know about insuring your life.
What is it?
A life policy is a form of insurance that pays out a lump sum to your beneficiary upon your death. Depending on the policy type, it might also have an investment component that creates a cash value that you can borrow against or cash in, or it might allow you to receive your death benefit while you are still alive.
Who is it for?
A life policy is for anyone, although it is most important for people who have significant assets and those with families who would face a financial hardship if the insured person died prematurely.
How does it work?
Unlike other types of insurance that can pay out over and over again for multiple claims, a life insurance policy will pay a lump sum to your beneficiary when you die. Some policies have expiration dates, and if you don't die before the policy expires, you and your beneficiaries get nothing. Generally, life insurers require a death certificate or other proof of the insured's death before they will pay benefits.
Types of policies
There are two main types of policies offered by life insurers: term policies and whole life policies. Term life policies provide coverage for a certain number of years, such as 20 or 30. If you die while the term is still in effect, your beneficiaries receive benefits. If you don't, you and your beneficiaries get nothing. Whole life policies have an investment component, in which some of your premium is invested and creates a cash value, which is yours even if you stop paying premiums.
The major benefit of a term insurance policy is that you get a large amount of coverage for not very much in premium cost. The major benefit of a whole life policy is that your premium dollars create a guaranteed sum of money, whether you die or not.