What is Life Insurance and How Does Life Insurance Work?
Life insurance is an insurance coverage program that we/people buy for themselves on through their loved ones incase anything (death) occurs. Life Insurance just as defined already is one of the few insurance products that we don’t buy for ourselves but for the continuous well being of the people we love if something was to happen to us. Frankly speaking, everyone wants to know how life insurance really works but and at the same time, nobody seems to have the answer. I’ve even searched online to see if I can see anything reasonable about how life insurance works but all answers I got is quite disappointing. Wish I can get something straight forward to tell you but nothing, however there are three major questions people are really asking when they ask “How Does Life Insurance Work?” the three questions behind the question are
- What is life insurance?
- How do i get life insurance?
- What happens when i die with life insurance?
Looking at the three questions on how life insurance really work;
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1. What Is Life Insurance?
Life insurance, is an insurance service that helps provide you with your financial responsibilities in the unfortunate case of your death. It’s a signed agreement between you and the life insurance company to take care of the financial implications of your burial if unfortunately you die. Now, here is the thing; the life insurance company will have to pay your beneficiaries the amount of coverage you applied for in the event of your death if you agree to pay your monthly premium. At the same time, if you stop paying your monthly premium, then they are no longer required to pay the death benefit to your beneficiaries.
Most Life insurance companies offer many life services but its comes down two basic concept or types of products: they are
- Term Life Insurance: Term life insurance provides temporary protection, it is the most affordable type of life insurance because it for temporary financial responsibilities. This means if you get a 20 year insurance term life policy, it does just that by covering you for 20 years. Now, at the end of the term and nothing happens to you, you can either convert it to a permanent policy or renew it for more years.
- Permanent Life Insurance. Permanent life insurance is the opposite of term life insurance but has a few variations. Most permanent life insurance services like Whole Life and Universal Life, comes with an investment aspect in the form of cash value accumulation. These services usually tend to be 3 to 4 times as much as expensive as the Term Life insurance option. This in part has to do with the fact that it’s “when you die” not “if you die” life insurance and the cash value accumulation.
At the same time, there is a less expensive Guaranteed Universal Life service that is a permanent life insurance which focuses more on pure life protection rather than the cash value stuff. In Guaranteed Universal Life, any cash value that it accumulates is used to keep the premiums level throughout the time. This service can be a better option for you if you aren’t interested in life insurance as an investment opportunity but focused on taking care of all of your financial expenses such as funeral costs, hospital bills and any remaining financial responsibilities upon your death as well as leaving a legacy for your family when you are no more.