Life insurance is a contract between an insurer and a policy owner, and it is optional insurance. It is one way you can provide financial support for loved ones after you die. When you open a life insurance policy, you will pay a regular premium in exchange for coverage. As long as your policy is active when you die, the insurance company will pay out a lump sum, also known as a death benefit, to the policy beneficiaries. Your beneficiaries can use the money for whatever purpose they choose, it is a way to secure the financial future of your loved ones. A life insurance beneficiary is a person who can claim the death benefit after you pass away. You can name multiple beneficiaries and decide what percentage they each will receive when you die.
LIFE INSURANCE COVERAGE
Life insurance benefits can cover a wide variety of expenses. In many cases, policyholders invest in life insurance to replace their income and ensure that their beneficiaries can meet financial obligations. That obligation usually includes End-of-life expenses (such as funeral and burial costs), Mortgage payments, Tuition payments, Personal debt, and Day-to-day expenses (groceries, etc.).
Life insurance covers most causes of death, including natural and accidental causes, suicide, and homicide. There are two common reasons why an insurer may deny a life insurance claim: a lapse in payment or misrepresentation of the policyholder’s health. Also, the insurer may deny a claim based on the circumstances of the death.
Life insurance policies also frequently include what’s known as a suicide clause, which voids coverage if the policyholder dies by suicide within a specific period after opening a policy. Also, some insurance providers will deny claims if the policyholder dies while engaging in a high-risk activity, like skydiving, at their time of death.
TYPES OF LIFE INSURANCE
There are two main types of life insurance: Term and Whole life insurance. Which insurance option is needed depends on several factors, including the reason for purchasing a policy, finances, and any investment goals there may have been.
TERM LIFE INSURANCE
Term life insurance lasts for a specific period of time, typically from one to 30 years. During the term, the policyholder makes fixed premium payments in exchange for a guaranteed death benefit. Under a term life policy, coverage ends at the end of the term. The best-term life insurance policies balance affordability with long-term financial strength. If you pass away within the term of your policy, your beneficiaries can make a claim and receive the death benefit money, tax-free.
WHOLE LIFE INSURANCE
Whole life insurance is a type of permanent life insurance. As long as the policyholder pays their premium, the policy will remain active for their entire life. In most cases, the policy premium and death benefit are fixed, and you will pay the same premium as long as you have the policy (Final Expense Insurance for example). Policyholders may be able to withdraw from or borrow against the cash value portion of their policy to fund expenses while they are living. It allows the policyholder to use the cash value for many purposes, such as a source of loans or cash or to pay policy premiums.
HOW DOES A BENEFICIARY MAKE A CLAIM?
Claims can be paid quickly – in about a week, assuming the insurer has all the documents it needs. Life insurance companies will not contact you. It’s unlikely they know that your relative died.
Claims are typically paid within 30 days after the insurer receives the necessary documents. You don’t need an original copy of the life insurance policy to make a claim. You only need to know the name of the insurance company and contact them to initiate the claim.
LIFE INSURANCE COSTS
The cost of life insurance premiums varies significantly depending on several different factors. One of the biggest cost factors will be the type of life insurance you buy and the level of life insurance you picked.
The most common factors affecting life insurance rates are AGE – the younger you are when you buy a policy the less you’ll pay), SEX – females have a life expectancy that is nearly five years longer than males, so men generally pay more for life insurance than women, HEALTH – the insurer will evaluate your past and current medical conditions in order to calculate your life expectancy and LIFESTYLE – your driving history, criminal record, and dangerous occupations and hobbies can all result in higher life insurance rates.
For more information about how to use the most out of your retirement funds, you should learn about Annuities.