What You Need to Know About Life Insurance

The term Life Insurance can be confusing, but the basic concept is simple: it provides financial protection and peace of mind while you’re alive, and security for your family after you’re gone. Whether your loved ones need to cover expenses like mortgages, funeral costs, or college tuition, or you simply want the assurance that your final estate will be financially secure, life insurance can help.

The most common reason for buying life insurance is to provide a death benefit, or lump-sum payout to your beneficiaries, which they can use to pay off debt, pay living expenses, or to build an investment. But there are other reasons for purchasing a policy, too.

Purchasing a policy early on can give you more options and flexibility, as well as lower premiums. It’s also important to compare quotes from reputable companies before selecting a plan.

To obtain a life insurance policy, you must submit an application and take a medical exam (depending on the type of policy you select). Once approved, the insurer will provide the coverage you choose. Some policies can last several years or your entire life, as long as you continue paying premiums.

When deciding on the right amount of coverage, it’s a good idea to estimate what your family’s expenses might be after you pass away. Add up the cost of your current debt, recurring monthly expenses, future children’s education needs, and other major purchases that you want to be covered. Then subtract your annual income, savings and other assets that can be used to meet these expenses. This can help you determine the maximum amount of coverage that you should have.

Choosing the right beneficiaries is another important aspect of life insurance. You’ll need to decide who will receive the death benefit payout in the event of your death, as well as contingent beneficiaries who will be paid if the primary beneficiary dies before you do. It’s a good idea to update your beneficiaries regularly, especially after significant life events such as marriage, divorce or the birth of a child.

You can purchase life insurance policies that have cash values and/or investments, but this option comes with additional fees and risks. It’s usually best reserved for individuals who have maxed out other tax-advantaged retirement accounts and savings vehicles.