Life insurance is financial coverage that pays a specified amount of money to a chosen beneficiary upon the death of the main policyholder.
The face value of the insurance policy is paid by the insurer in exchange for regular payments over the insurance term, referred to as premiums. There is a large variety of life insurance policies on the market to meet a wide range of policy holder needs, and choosing the best coverage for your specific situation depends on several factors including income, dependents, and additional financial priorities. However, life insurance can be divided into two main categories: permanent life insurance and term life insurance.
Permanent life insurance is lifelong and only pays out upon the death of the policyholder. Term life insurance lasts for a set period of time, such as 10, 20, 30 or 100 years, at which time it may mature, or be renewed for a longer term.
The "policyholder" refers to you, the person buying and paying for the insurance coverage. The "beneficiary" is the person you select to receive the payout from the policy when it matures, also known as the "death benefit".
While buying life insurance is a way to ensure your loved ones will be financially protected in the case of your death, there are several ways it can be used to benefit both you and your beneficiary. Here are a few ways life insurance can protect you and your assets:
There are many ways life insurance can benefit a policyholder, and different policy types exist to fulfill a large range of needs. While some consider life insurance to only be required for those who are married or have children, this is a misconception -- those who are single or without dependents can also benefit from this kind of coverage. In fact, anyone who requires money to cover their expenses and debts or provide for their loved ones after death is in need of life insurance.
Determining the level of coverage needed is the first step to choosing the right life insurance for your specific needs. Often, the suggested monetary amount for a policy should be five to seven times your yearly net income.
Other factors, such as your assets, required ongoing income, financial liabilities and possible end-of-life costs should also be considered when determining your coverage requirements. It’s best to speak with a qualified life insurance agent who can further analyze your financial needs and help you create a strategy for your life insurance.
A financial advisor is your best bet to determine how much coverage you'll need later in life, based on your ongoing financial commitments, investments and changing income needs.
Everyone’s life insurance needs are different, and the coverage and policies offered by insurers can greatly vary. It’s important to compare life insurance rates, types of coverage and term options available on the market to find your best fit.