What is Life Insurance?
Life insurance provides money to help your beneficiaries pay their bills and other living expenses when you die. Some policies can also provide benefits when you are alive.
A beneficiary (loved ones) is someone who you designate to get the money from the life insurance policy after you die. The money is called a death benefit and is typically tax free to the beneficiary. You can have more than one beneficiary, but you must decide how to divide the money. You can also have a secondary beneficiary or contingent to receive the money if the primary beneficiary dies before you do. You can also designate an institution as your beneficiary.
Reasons to buy life insurance:
· Ensuring that your beneficiaries have enough money to maintain their standard of living
· Paying your burial expenses and outstanding debt
· Meeting the requirement for business loans
Whole life, universal life, and variable life insurance can build a cash value you can use while you’re alive. Although you can use this money for retirement income, agents and companies may not call life insurance an investment or retirement income source. If an agent or company tries to sell you a life insurance policy as a good investment, be wary. Also, don't confuse life insurance with annuities. People often buy annuities for retirement because they can provide steady income over a long period.
What is underwriting?
Insurance companies use a process called underwriting to decide whether to sell life insurance to someone and how much to charge them. The company will consider these factors to decide the premium to charge:
· your age
· medical condition
· whether you use tobacco
· your hobbies and occupation
For example, younger people and people in good health, who don't use tobacco, and who don't have a hazardous job or hobby will have lower premiums because the company expects these policyholders to live longer. People who are older, have health problems, use tobacco, or have a hazardous job or hobby will pay more.
Who needs Life insurance?
· Do you need to replace your income to provide for your spouse, children, or other family members?
· Do you have debt, such as a mortgage, credit cards, student loans, or other debt?
· Do you want to help your children pay for college?
· Will your family need money to pay for your funeral costs or the cost to settle your estate?
· Do you have a large estate that could be subject to state or federal estate taxes?
· Do you own a business that’s financially dependent on you or someone else?
· Would you like to leave money to a charity?
If you answered yes to these questions, consider buying life insurance.