Some say it’s a gamble. Others call it security and peace of mind. But what is life insurance, really? Why might you need it? And what are your options if you want to buy it?
Life insurance is really one way of planning ahead and preparing to take care of your family financially in the event of your death. You pay a monthly premium to a life insurance company and in return, that company will pay your family the agreed-upon death benefit if you pass away while the life insurance policy is in effect.
Life insurance can help protect your family from financial loss and help pay for funeral expenses, mortgage payments, college tuition or just meet day-to-day monetary needs. The point is to leave enough money to ensure your passing won’t leave your family in dire financial straits.
Life insurance companies offer two main types of life insurance: term life insurance and permanent life insurance.
Term life insurance covers you for a limited amount of time – usually 10, 15, 20 or 30 years. During the term, your premiums will never increase and if you die while the policy is in effect, your beneficiary will receive the death benefit. If you outlive the term period, you can either continue the policy for an annual renewable premium that is likely to be much higher, or you may be able to convert your term policy to a permanent life insurance policy without taking a new medical exam.
Permanent life insurance builds up cash value so premiums are generally higher than term life. The policy is meant to last your whole life, and part of your premiums are set aside in an account where the money grows in value. Down the road, when you’ve accrued enough value in the policy, you can actually tap into that money and use it to fund things like college tuition or a down payment on a house. Withdrawals or loans will generally reduce the death benefit paid by the policy. There are several types of permanent life insurance, so you should consult with a qualified life insurance agent to learn more about what kind might be right for you.
The American Council of Life Insurers advises consumers to research life insurance companies before buying a policy. Tips include:
* Make sure the company is licensed in your state by contacting the state insurance department.
* Most life insurance companies are safe and secure, but you should still check to ensure the one you’re talking to is reputable and financially sound.
* Consider checking with a rating service like A.M. Best Company, Moody’s Investor Services or Standard & Poor’s Insurance Rating Services.
