Life Insurance Part I

What Is Life Insurance?

Life insurance is a contract between an insurance company and a policy owner in which the insurer guarantees to pay a sum of money to one or more named beneficiaries when the insured person dies in exchange for premiums the policyholder pays during their lifetime.

• Life insurance is a legally binding contract that promises a death benefit to the policy owner when the insured person dies.
• For a life insurance policy to remain in force, the policyholder must pay a single premium upfront or pay regular premiums over time.
• When the insured person dies, the policy’s named beneficiaries will receive the policy’s face value, or death benefit.
• Term life insurance policies expire after a certain number of years. Permanent life insurance policies remain active until the insured person dies, stops paying premiums, or surrenders the policy.
• A life insurance policy is only as good as the financial strength of the life insurance company that issues it. State guaranty funds may pay claims if the issuer can’t.

When my dad died, my family was able to bury him and host a repass without financial stress or worries as he had life insurance.  The funeral home was accommodating and helpful once they verified that the policy was in effect; their funds were guaranteed.  Life insurance eases the financial burden and hardships that families face when a loved one passes away.  Life insurance takes care of the coffin, funeral services and burial, etc., while the family is mourning.

Whether you are young or old, single or married, with or without child(ren), it’s recommended that you have life insurance. Some families finance the cost of the funeral arrangements; a $15,000 expense can turn into a $25,000 debt.  Lack of planning can lead families to raise the funds via “Go Fund Me” or seek donations/contributions from other family members which can be stressful.

Depending on the face value, you can start creating generational wealth. The type of life insurance obtained can be used as a financial tool while still alive.  Many people use the cash value of the policy to start businesses, use it as a downpayment for a home, make large purchases or start an investment portfolio. Life insurance can also be useful while alive.

Life insurance companies can also change laws and decrease wrongful deaths.  Insurance companies are designed to make a profit; not constantly pay out the value of the policy. If they were required to pay out every time there was a wrongful death, they would go bankrupt.  Their lawyers and lobbyists will have rules and regulations changed to ensure their profits are secured and protected.

Types of Life Insurance

Many different types of life insurance are available to meet all sorts of needs and preferences. Depending on the short or long-term needs of the person to be insured, the major choice of whether to select temporary or permanent life insurance is important to consider.  The types of polices will be discussed in my next blog.

Author: Miriam B.