What you need to know about life insurance
If your family members are dependent on your income and you are worried about how they will maintain their lifestyle in your absence, then you need to purchase a life insurance policy. While searching for a suitable life insurance policy, it is advisable that you have a clear idea about it. Read on to gather knowledge about life insurance policy in details.
The importance of buying life insurance
There are several benefits of buying a life insurance policy. The benefits are given below.
1.Paying off debts – It becomes easier for the beneficiaries to continue making the monthly mortgage or other loan payments in the event of death of the policyholder. So, the dependants don’t have to sell the house and they can continue living in the property.
2.Income replacement – Such a policy may help the family members maintain their lifestyle in the absence of the earning member, the policyholder.
A life insurance policy may also help the beneficiaries to meet the funeral expenses of the policyholder. Nowadays, the funeral costs are quite high. The dependents can use the life insurance policy to settle the expenses.
How a life insurance policy works
Like any other insurance policies, life insurance is a contract between the policyholder and the insurance company. The policyholder agrees to pay a premium and in exchange, the insurance company agrees to pay a tax-free lump sum amount to the beneficiaries in the event of death of the policyholder. For example, if a policyholder buys a $200,000 policy, then the beneficiaries are supposed to get the amount when the policyholder dies provided he/she not borrowed from his/her life insurance policy.
Types of life insurance policies
There are primarily 2 types of life insurance – term life insurance and whole life insurance. A term life insurance policy provides coverage for a specified number of years whereas a whole life insurance policy offers coverage to a policyholder for his/her entire life. In case of a whole life insurance policy, the death benefits are received by the beneficiary of the policy in the event of the death of the policyholder; whereas, in case of term life insurance, the beneficiary is eligible to receive the benefits for a specific time period.
How much coverage you require
Actually, a policyholder needs to calculate the present lifestyle of his/her family members and how much they would be able to afford in the absence of the policyholder. So, to calculate the coverage amount, you, the policyholder, need to consider the education costs of your children, amount needed to pay off debts, the lifestyle of your family members, etc. It will help you decide the exact coverage amount you need to purchase.
While buying life insurance, you should know that there are various ways by which you can reduce the cost of your policy. You can choose an annual payment plan or make some lifestyle changes to reduce the premium cost of your policy. Most importantly, shop around so that you can purchase a life insurance policy with the most suitable terms and conditions.
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