Insuring their life is not something most people want to think about, but it is important. Life insurance protects your family in case something happens to you and also may offer some other benefits.
What is it?
A life policy is one of the only types of insurance policy that usually pays out benefits to someone other than the insured person. All life policies have a death benefit that pays out to beneficiaries upon the insured’s death, and some policies have other features that may allow benefits to be tapped by the insured while he or she is still living.
Who is it for?
Anyone can benefit from having a life policy, but it is most important for people who have others counting on them for support. Married people and parents definitely should have insurance. You also should have it if you care for a vulnerable adult.
How does it work?
To get the death benefit of a life policy, your beneficiaries must make a claim after you die and prove you are dead and that your death wasn’t caused by something excluded in the policy, such as suicide. Once that requirement is satisfied, your heirs should get a lump sum payout within whatever time period is specified in the policy. If your policy offers other benefits, such as being able to borrow against the policy or receive benefits while you are alive, you have to follow whatever process is in place to make a claim on that money.
Types of coverage
There are two main types of life insurance coverage: Term and whole life. A term policy offers a death benefit for a set time, and if you do not die within that term, the policy expires. Whole life offers a death benefit forever as long as you pay the premiums and also generates a cash value that belongs to you and that you can borrow against.
The main benefit of having a life policy is protecting your loved ones in the event you die prematurely. Additional benefits protecting your assets and lowering taxes on your estate.