What to know about life insurance
Many people forgo life insurance, either because they think it is too expensive or they are young and healthy and don’t think they need it. But there are different types of insurance and multitudes of ways in which it can benefit people of all ages.
What is it?
At its most basic, a life policy insures against your death. If you die, the beneficiary you named gets paid a benefit. Some policies have other types of benefits that may be tapped while the insured person is still alive.
Who is it for?
Anyone should consider getting a life policy, but it is especially important for people with dependents or others who rely on their income. Parents, spouses and people who take care of a vulnerable adult all should have a life policy.
How does it work?
A life policy typically pays out a benefit to named beneficiaries when the insured dies. The beneficiary will have to claim the policy and provide proof of the insured’s death. Some policies have other benefits that can be tapped when the insured is still alive. Life insurance benefits generally are not taxable.
Different types of coverage
There are essentially two types of life coverage, although there are variations of each. Term life is a type of insurance that usually only offers a death benefit and only for a set number of years. If the insured dies during the term, the policy pays out. If the person does not die during the term, the policy expires and there is no benefit. Whole life provides not only a death benefit but also a cash value that builds up over time and can be tapped for a loan or cashed out as a lump sum at some point.
The major benefit of a life policy is protecting loved ones financially in the event of your death. Such policies also can provide a way to pay for a funeral so someone else is not burdened with it, and they can provide a source of cash to pay any taxes due on an inheritance.