Life Insurance

 

 

Life insurance is one of the most important insurance policies that is available on the market. In terms of the potential financial cover involved, it is probably the largest. Life insurance is the oldest and surest way providing for your family in the event of your own death, that the insurance industry provides.

 

The most basic and straightforward type of life insurance is term life insurance. How term life insurance works is that you take out a policy for a term. The term can be one year, or it can be twenty years, or it can be up to the date that you retire at. In any case, you will set a price for which you want to be insured. This should somehow relate to how much you are worth in financial terms or how much you earn. The reason for this is because you are trying to protect your family from the loss of earnings they will suffer if you die. There will also be some rules with the insurance company that prevent you from taking out far more than they calculate you are worth.

You will then name your beneficiaries. In most cases these will be your spouse or your children, but they can be someone else who has an interest in your life, such as your employer, your business partners a bank or lender to whom you owe money such as your mortgage.

The final step is that the life insurance provider will calculate a premium that you will have to pay, usually monthly for the insurance. This is broadly speaking, based on the amount they will have to pay out, and the likelihood of your death.

The reason this is called term life insurance is because if you die during the term of the policy, the life insurance company will pay out to the beneficiaries named on the policy. However, if you live past the date of the term, then nothing will be paid out and the policy is finished. The insurance company will get to keep all the premiums you have paid them. For this reason, with term life insurance, it is vital that you think carefully about the length of the term.

The policy should come to an end at a meaningful date, such as the year your mortgage is repaid, the year you retire, or the year when you think your children will no longer need to depend on your income. Otherwise, if the term is set to end at an arbitrary date such as two years from now, at the end of the two years you will be again without insurance and this time it will cost more to set up another term life insurance policy as you are older.

 

Most other types of life insurance policy are a variation on term life insurance. You can have decreasing term insurance which can for example, insure you for the decreasing amount left to pay on your mortgage. Or you can have increasing term which will increase the amount paid out. You can have renewable term life insurance which will allow you to take out the same policy again at the end of the period for a pre-agreed price.

 

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