Life insurance pays a specified amount of benefits to an individual or individuals known as beneficiaries upon the death of a person, known as the insured. Typically, these benefits are used to pay final expenses of the deceased and any other unpaid bills (i.e. mortgage, auto loans, etc.) that they might have incurred during their life.
There are different kinds of life insurance coverage. Some life insurance can be in force for a specified amount of time and then expire. Other kinds can build cash value, allow the policyowner to take out a loan against the policy or it can even become paid up and you'll have it for the rest of your life and never have to make payments on it ever again.
Premiums are the amount you'll pay per month to have the coverage. This amount will vary based on the type of coverage you want, the amount of the benefit, the age of the insured, occupation, hobbies and so on. Term life coverage usually offers the lowest premuim. It provides coverage for a specified amount of time, usually 10 to 30 years and then it expires if the insured is still alive. If the insured does pass away during the coverage period, then benefits are paid to the beneficiary. Other coverages like whole life and universal insurance are generally more expensive, but depending on your long term goals, it may be a better option for you.
In addition to what Daniel Graham posted, many newer Life Insurance policies offer living benefits as well as death benefits. Many policies have an Accelerated Death Benefit Rider. This will pay a percentage of the face amount if the insured contracts a terminal illness. This varies according to company. Some contracts also offer Long Term Care benefits and critical illness benefits. While Life Insurance was never meant to be an investment, it does create an immediate estate. If you put $100 into a money market for example, and you die the next day, your beneficiary would get $100. If you pay a $100 premium on a new life policy with a face value of $100,000 and you die the next day, your beneficiary would get $100,000. My point is that Life Insurance has a definite place in financial planning and with the living benefits many companies now offer, it is even more attractive.
Agent Owner, Gilmore Insurance Services, Marysville, Washington State
What life insurance does that no other financial product does is create a pool of money upon the death of the insured that does not involve a surrender or sale or expense that any other product or asset may. When there is a stated beneficiary life insurance also passes outside of probate which makes the benefit funds available within days of a death.
Life insurance provides protection and security to families as it is the one thing that really can step in and help during a terrible time. It can provide temporary coverage for a momentary need. It can provide a life time of coverage and supplement retirement needs depending on what a person chooses to do with it.
This will date me, but I call life insurance the "silly putty" of financial products because it can be stretched, twisted, pulled, transferred into just about any shape for any purpose, more than any other financial product out there. It is the Swiss army knife of financial products.
What does life insurance do? That is a great question. Auto insurance pays to repair your car, home insurance pays to repair your home, health insurance pays to repair your health. But life insurance does not pay to repair your life. Rather, life insurance pays when death occurs. It's purpose is to "repair" some of the financial damage that is incurred upon the death of a loved one and/or provider. That is not all life insurance does - there are many reasons that people purchase life insurance. But it is the basic purpose.
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There are different kinds of life insurance coverage. Some life insurance can be in force for a specified amount of time and then expire. Other kinds can build cash value, allow the policyowner to take out a loan against the policy or it can even become paid up and you'll have it for the rest of your life and never have to make payments on it ever again.
Premiums are the amount you'll pay per month to have the coverage. This amount will vary based on the type of coverage you want, the amount of the benefit, the age of the insured, occupation, hobbies and so on. Term life coverage usually offers the lowest premuim. It provides coverage for a specified amount of time, usually 10 to 30 years and then it expires if the insured is still alive. If the insured does pass away during the coverage period, then benefits are paid to the beneficiary. Other coverages like whole life and universal insurance are generally more expensive, but depending on your long term goals, it may be a better option for you.
Life insurance provides protection and security to families as it is the one thing that really can step in and help during a terrible time. It can provide temporary coverage for a momentary need. It can provide a life time of coverage and supplement retirement needs depending on what a person chooses to do with it.
This will date me, but I call life insurance the "silly putty" of financial products because it can be stretched, twisted, pulled, transferred into just about any shape for any purpose, more than any other financial product out there. It is the Swiss army knife of financial products.