Life insurance is a contract between a company otherwise known as the insurer and an individual called the insured.
The contract guarantees that when the insured individual dies, the company (insurer) pays a sum of money (death benefits) to named beneficiaries in exchange for the premiums paid by the insured during their lifetime.
However, the life contract must accurately disclose the insured’s past and current health conditions, this will give the company the basic information they need to enforce the contract.
Then, for the contract or agreement to remain in force, the insured or individual must pay a single premium upfront or pay regular premiums over time as agreed between both parties.
Types of Life Insurance
There are various types of life insurance available to meet all sorts of individual preferences. However, your choice of insurance is dependent on your needs and preferences.
Two major types of life insurance are temporary(term life) insurance and permanent life insurance.
Term life (Temporary) insurance is the simplest form of life insurance that lasts for a certain number of years mostly 10, 20, or 20 years, then ends.
Permanent Life Insurance is a type of life insurance that lasts for the insured’s entire life unless the company stops paying the premiums or surrenders the policy.
Benefits of Life Insurance
Financial Security/ Peace of Mind
Generally, life insurance provides the insured with ultimate peace of mind that comes from financial security. This is because if they eventually meet with their demise, they know their family and loved ones are financially secured.
This means that despite the financial liabilities of the individual, adequate life insurance cover ensures that your debts or loved ones will be financially taken care of in the event of death.
Life Insurance ensures that the individual gets life coverage and also provides financial aid at the time of medical emergencies decreasing the stress to arrange funds right at the same time.
Most life insurances come with the opportunity to create more wealth thereby increasing the amount you’re able to pass on to a spouse or the next generation in your family.
Additionally, the dependents of the insured receive death benefits. This means that during the unfortunate event of the demise of the insured individual, the listed dependents receive the entire sum assured amount as long as the premiums have been paid in full.
Your Dependents Won’t Have to Worry About Living Expenses
Generally, life insurance companies recommend having life insurance that’s equal to seven to 10 times your annual income.
That way your children or dependents will never have to worry about their living expenses or other major costs.
However, this is dependent on the policy that was enforced as covering the cost of your children’s college education, and they won’t need to take out student loans.
In addition, the insurance policy might also cover your home mortgage, pay off other debts, such as car loans, credit cards, and student loans and even replace lost income for years of lost salary.
Another major benefit of life insurance is tax-free payments because death benefit payouts are generally tax-free.
This means that life insurance premiums qualify for a tax deduction and some policies have features that can help transfer money to heirs with fewer tax liabilities.
Critical Illness Cover
Most life insurance covers critical medical bills as well. Critical illness can sometimes be inbuilt into the life insurance plan or it can be purchased for additional coverage along with benefits under the life insurance plan.
That way the company provides financial support and aid at the time of diagnosis of any critical illness that is listed under the insurance companies.Featured Image Source: Google Sites
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