Everything You Need to Know About Choosing a Life Insurance Policy

Everybody wants to foresee themselves living a long and happy life, but the truth of the matter is that everybody will pass away eventually. When this occurs, you will likely be leaving behind many loved ones and people who were potentially dependent on you. Ensuring they are taken care of after you are gone should always be a top priority. For many individuals, the solution to this issue is the investment into life insurance.

What is Life Insurance?

For those who are unfamiliar with the term, life insurance is similar to other forms of insurance in that it is a contract between a company and a policy holder. This legally binding contract ensures that if the policyholder dies while the policy is active and in-place, then their listed beneficiaries will receive a lump-sum of money known as a death benefit. There are a variety of different types of life insurance that are meant to suit the needs of nearly every average person.

How Does Life Insurance Work?

Understanding how life insurance works when the insured person dies revolves around breaking down some of the terms associated with a policy:

Death Benefit: This is the face value of the life insurance policy and is the sum of money that is guaranteed to go to the beneficiaries of the policy. The person who is insured works with the life insurance company to determine this amount, based on the future expected need by the beneficiaries, and if the life insurance company agrees during the underwriting then the amount is set.

Premium: A life insurance premium is the obligation of the insured person. It is either a monthly payment or one-time upfront lump sum payment. So long as this obligation is met by the insured person, the life insurance company will pay the death benefit to the beneficiaries if the insured person dies. The value of a life insurance premium will vary depending on a person’s specific circumstances, more specifically focusing on their life expectancy.

The above terms are the basis for most life insurance policies. Most life insurance policy holders pay their premium on a monthly or yearly basis, as opposed to a one-time lump sum. There are certain life insurance policies that also feature a savings component known as cash value, which can be borrowed against or withdrawn throughout the life of the policy. When the insurer dies, however, these funds are diverted back to the company.

Choosing the Right Type of Policy: The Different Kinds of Life Insurance

Life insurance is not a one-size-fits-all. There are a variety of different types of life insurance to choose from. When considering Mississippi life insurance it’s important to look at the breakdown of different policies to determine which type offers everything that you need. The three predominant categories for life insurance include:

Term Life Insurance

Serving as the most basic form of life insurance, term life insurance is only designed to last for a certain number of years before the policy expires. Generally, these terms are one year, ten years, twenty years, and thirty years on average. It is possible to renew your term life insurance on an annual basis at the end of its term, in most cases, but by this point in time your health may have changed which can result in higher premiums.

There are also convertible term life insurance policies which automatically convert to permanent life insurance at the end of the term. Most people who purchase term life insurance do so during their prime working years in the event of an unexpected death.

Permanent Life Insurance

The second type of life insurance is permanent until the insured person dies. Unless the policyholder stops making payments, the death benefit will always be available for disbursement should the insured die. There are three general types of permanent life insurance: whole life insurance, universal life insurance, and variable life insurance, and you can compare permanent life insurance on this site to find out the costs involved with each type.

Whole life insurance is a form of permanent life insurance that accumulates a large cash value over the life of the policy. Universal life insurance offers the same as whole life insurance, but with interest and flexible premiums. Variable life insurance allows a person to invest their cash value into an applicable separate account.

Final Expense Life Insurance

Finally, final expense life insurance is designed for those nearing the end of their life and is typically for a small amount meant to cover death expenses such as those associated with a funeral, legal expenses, and other end-of-life expenses.

Who Needs Life Insurance?

Currently, at least three in four adults in the United States have life insurance to some degree. For those who have people who are dependent on them, your sudden and unexpected death could leave those people in a challenging situation. However, life insurance can ensure that they receive a predetermined death benefit so long as you keep the policy open.

With the above said it can still be confusing whether or not life insurance is necessary for you. This type of insurance is most applicable to the following individuals:

If you have a partner living off their income

If you have young children

If you would like to leave family members funds for a funeral

If you contribute to major family expenses such as a mortgage or schooling

If you have a large amount of debt that you don’t want passed down to your heirs

If you have a business partnership where the other partner will go under if you die

Stay protected against the inevitable

Nobody wants to think about the fact that they will die someday, but it’s important to always be prepared and to ensure that those who count on you won’t be left in a more troubling situation once you are gone. Making the decision to invest in life insurance doesn’t mean death is around the corner, rather it is a smart way to confidently ensure that those you love and care for will remain comfortable once you pass.