6 Important Life Insurance Facts

Life insurance works like a financial blanket that protects your family against the odds in case you die. Surprisingly, many people take a policy just because everyone is taking it, without knowing what it means and how it works. The complexity is often confusing and you may end up taking a policy that may not be suitable for your requirements.

Some people may even avoid taking a policy out because it is easy to avoid the topic of your own death. To prevent such confusion and skepticism, it makes sense to understand life insurance better before you actually sign up for a policy. Here are some life insurance facts that you must absolutely know.

It is a contractual arrangement

Essentially, life insurance policy is a contractual arrangement between the insurance company and a person having a financial interest in someone else’s life. The company collects the premiums from the policyholder and disburses claim to the beneficiary in the event of the insured’s death. This contract is beneficial to both parties, while the insured gets the benefit of risk coverage, the provider makes a profit. This profit is calculated as the difference between the premiums taken and the claims paid out in case of death.

It is a risk management tool rather than an investment

If you think that life insurance policy can be a smart investment, you need to understand that it is rather a risk management tool. There are policies that offer tax privilege feature, but this does not make them an optimal investment. All in all, by taking up a policy for ensuring your life, you are covering the financial risks for your loved ones in case of an unfortunate and unforeseen event of your death.

Family summer holiday

You surely need one if anyone is financially dependent on you

Taking a life insurance policy becomes mandatory if your spouse or children are financially dependent on you. On the other hand, you may skip taking one if you are financially independent or stably retired and no one would have to bear financial hardship if you were to die. You may still opt for one as a financial tool rather than risk coverage. Although life insurance is usually associated with the primary earner of a family, Theresa Rowden from Genesage.com says that it is also a good idea for stay-at-home parents to have life insurance in case the child care and general home upkeep they provide ever becomes unavailable.

It does not apply a monetary value to someone’s life

Rather than applying a monetary value to the life of the insured, a policy compensates for the financial consequences of their death. Simply speaking, it helps the ones who are left behind to cover the costs of lost income, outstanding mortgages and debts, educational expenses and any other final expenses. At the same time, it gives the policyholder the peace of mind while alive because it assures them that the loved ones will be financially secure even if they are no more.

It can be affordable if you choose the right one

Usually, people are daunted by the idea of taking up a policy because they think that the premium would burn a hole in their pocket. Surprisingly, it can be very affordable if you take the right one at the right time. For example, the premium amount can be quite low for a healthy, non-smoking young adult. However, the situation may differ for smokers, those with health problems or even the older holders. So it is always better to take a policy sooner rather than later.

A calculator and money

Choosing the right policy need not be complicated

Now that you understand the significance of choosing the right life insurance policy, you would definitely want one that gives you optimal coverage with minimum premium to be paid. Determining such a policy needs some research but it is not as complicated as it appears. Generally, a policy that replicates all or most of the income of the assured for a time period as long as the dependents expect to need that income would be right for them.

When you plan to take a policy, consult an expert insurance agent who can assess your requirements and help you choose the right one. Further, they can assist you with the application and underwriting process as well. There are several online tools that you can access to get a fair idea about the amount to be paid for a policy that has your family covered optimally. Choosing the right agent is as important as choosing the right policy because it can assist you from end to end.

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