Syndicated Financial Columnist, Host of the weekly talk show Steve Savant's Money, the Name of the Game, Scottsdale Arizona
Video Transcript: Today's question is, How does life insurance work? Well, life insurance indemnifies or protects, or covers your liabilities. Let's say you have indebtedness. Most people have a mortgage, and especially most mortgages today are dependent on two incomes. You'd want to be able to cover both people that are involved in the mortgage so that if somebody died, they'd be able to pay off their mortgage.
But, not only that, you'd want to be able to pay off all your credit cards, any other indebtedness you have and put money aside, bought through the death benefit for future obligations that you might have. Like for example, college education, or the retirement of the surviving spouse. These are areas where insurance indemnifies you from financial loss and gives your beneficiaries, usually, tax free benefits if something happens to you.
Health insurance pays when someone is sick. Property insurance pays when there is damage to property. Life insurance pays when someone dies.
It starts when people decide to get life insurance on themselves, or on others who have financial ties to them. They apply for coverage, comply with underwriting requirements (which may or may not include taking a free physical exam), and then are issued policies.
These policies include beneficiaries designated by the owners of the policies. When the insured persons in the policies pass away, their beneficiaries receive the amount of life insurance that was purchased by those policies.
Of course, there are different types of life insurance that can provide cash value, additional benefits, etc. But in a nutshell, that is how life insurance works.
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But, not only that, you'd want to be able to pay off all your credit cards, any other indebtedness you have and put money aside, bought through the death benefit for future obligations that you might have. Like for example, college education, or the retirement of the surviving spouse. These are areas where insurance indemnifies you from financial loss and gives your beneficiaries, usually, tax free benefits if something happens to you.
It starts when people decide to get life insurance on themselves, or on others who have financial ties to them. They apply for coverage, comply with underwriting requirements (which may or may not include taking a free physical exam), and then are issued policies.
These policies include beneficiaries designated by the owners of the policies. When the insured persons in the policies pass away, their beneficiaries receive the amount of life insurance that was purchased by those policies.
Of course, there are different types of life insurance that can provide cash value, additional benefits, etc. But in a nutshell, that is how life insurance works.