What is Life Insurance?

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I haven’t really tackled life insurance because it’s not a really big priority in our lives right now. But I think it’s important to understand the basics of life insurance.

What is life insurance?

Life insurance is a contract between an insured (insurance policy holder) and an insurer or assurer, where the insurer promises to pay a designtaed beneficiary a sum of money (the “benefits”) upon the death of the insured person (Source: Wikipedia). Policies and contracts vary from situation to situations. Some life insurance policies pay funeral expenses, others are triggered upon death or a terminal illness.

What types of life insurance are there?

Contracts fall into two major categories. You might have heard of term insurance? Term insurance provides a lump sum payment. Term insurance is an example of a protection policy.

Have you read about whole life, universal life, and variable life policies? These are investment policies commonly bought in the US. The main objective is to facilitate the growth of the capital through monthly or lump sum premiums.

Where can I get life insurance?

There are many life insurance vendors including Life Broker, Met Life, Geico, State Farm, Liberty Mutual, Farmers, Allstate, etc.

Why should I get life insurance?

If I’m dead, why do I need life insurance? Do you have a spouse? Maybe you have kids? Life insurance may potentially be a safety net for your family if you happen to die. It could also pay for your funeral expenses. I know a lot of people that hit 30 and get life insurance. At that point in their lives, they are married and having kids, thus life insurance is an option.

Does your employer offer life insurance as part of your benefits?

Before you go shopping for life insurance, look over your company benefits. I have employee life insurance. Currently I’m insured at 2 times annual pay. As my company’s employee, during initial enrollment, I may have elected to go with any of the 7 options including $10,000, 1 times annual pay, 2 times annual pay, 3 times annual pay, 4 times annual pay, 5 times annual pay, 6 times annual pay. Maximum coverage available is $1,000,000 through my company. My company, also, offers the option of spouse life insurance. Options range between $5,000 to $100,000. Or a company employee can simply elect no coverage for their spouse. I can only increase my coverage by one coverage option level each enrollment period.

One of my coworkers jokingly said he didn’t have life insurance in his twenties because at the time he was worth more dead than alive if he had elected to go with the automatic company benefit policy of six times the annual pay.

Is life insurance shopping fun?

I don’t think life insurance shopping is fun. Frankly, you may or may never use it in your life. Joe at Retire by Forty wrote an article about how life insurance is fun, as long as you like giving up some of your blood. After shopping for life insurance in his 40s, he actually thought it might have been better to shop for life insurance when you are young. Taking out a small policy when you are young and healthy may be cheaper than when you are older and not so healthy.

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