What are the basics I should know about my life insurance?

Chances are, you have probably thought about purchasing life insurance if you haven’t done so already. Life insurance is a good way to protect those who rely on you financially if you die suddenly, and it pays a specific amount of money to your beneficiaries in the event of your death. It provides money to cover medical, funeral and future living expenses for them.

You may not need to buy life insurance if nobody relies on you financially, and you may get enough money from your employer to cover funeral expenses, which should be enough in that case. However, if you are married or have children or people who depend on you financially, you should get life insurance to protect these individuals in the event of your death. The life insurance rates you get will depend on many different factors, so it is hard to say how much you will end up paying for life insurance.

When it comes to your life insurance policy, the main things you should know are the type of policy and its amount, both of which you choose. When choosing the amount, you should purchase at least enough so that your dependents can live off the interest of the money. Therefore, you should figure out your family’s annual cost of living and then use that to determine how much life insurance you should purchase. If you have debts or are paying off a mortgage, you should add enough to pay those off, and if you have children, you should also add enough to fund their education.

When choosing the type of policy, there are two main options: term and whole life insurance. Term life insurance is a policy you purchase for a certain number of years, which means your beneficiaries will only receive the money if you die within a certain period of time. Its rates are significantly lower as a result, and by the end of the policy, you should self-insure or plan on taking out a new policy.

Whole life insurance is a cash value policy that you purchase and keep for the rest of your life. You pay a premium for this insurance, and it is often sold as an investment because it has cash value. You can even take money out of it or borrow against the amount while you’re still alive. Although this option is more expensive, the premium is also constant, and the coverage is lifelong.

Other kinds of life insurance policies include universal life insurance and variable universal life insurance. Universal life insurance is another permanent cash value insurance and has more flexibility than whole life insurance. Universal life insurance has an investment savings element where it can accumulate cash value, which earns interest based on the current market or minimum interest rate. The policyholder can access some of the cash value without affecting the death benefit, but the beneficiaries will only receive the death benefit if the policyholder dies.

Variable universal life insurance has a cash value as well, but the cash value can be invested in a variety of separate accounts so that it can earn returns. However, this also comes with a higher risk. Variable universal life insurance policies have a maximum cap and floor on the returns the investment part receives.

Aside from the type and coverage, there are a few other things you should know about your life insurance policy. You should always read your policy so you know the specifics and are aware of what you’re paying for. You should also make sure you can afford the premium and make sure your company has a strong financial rating so that you know they will have enough money to pay your claim. 

Conclusion

After deciding to buy life insurance, the main things you should know about your policy are its type and amount of coverage. If your policy is not permanent, you should have a plan on what to do once the time period is over. Permanent and non-permanent policies have many benefits and drawbacks, as permanent policies are more expensive. Additionally, the amount of life insurance you purchase should be enough so your dependents can live the same lifestyle off the interest generated from the money and to pay off mortgage, debts and education costs. Overall, the life insurance policy you choose should depend on your situation and needs.