If you want to protect your family’s financial future, you need to consider buying a life insurance policy. Still, you might find yourself asking, “What is life insurance, and how does it work?” Let’s take a closer look at it so you’ll see why it’s so important to have.
Life Insurance in Simple Words
Life insurance can be confusing, so let’s start by looking at it in simple words: it’s a contract between a policyholder and the insurer. As part of the agreement, the policyholder pays the insurance premiums.
If the policyholder passes away while the contract is active, the insurer pays the death benefit. The beneficiary can use the death benefit for anything he or she wishes, from paying for college expenses to buying a new home or vehicle. The death benefit can also cover living expenses so the beneficiary can maintain the same lifestyle after the policyholder passes away.
What Are the 4 Types of Life Insurance?
Policies can be broken down into four categories. You can purchase:
- Whole
- Universal
- Variable universal
- Term
Let’s take a closer look at each type of policy.
Whole, Universal, and Variable Universal Life Insurance
Whole, universal, and variable universal policies are forms of permanent life insurance. If you buy one of these policies and pay your premiums, you’ll have coverage until your death. Then, the policy will pay your death benefit.
Along with having a death benefit, permanent policies build a cash value that you can access. Every time you pay a premium, some of the money goes into a cash account. Depending on the policy, the cash will earn interest, or the insurer will invest it. You can borrow from the account or even use it to make your premium payments.
Whole life policies have fixed premiums, and the cash value is guaranteed to build and grow at a specific rate. This also applies to universal life insurance policies. Still, the premiums are flexible and grow over time. Variable universal coverage also has flexible premiums and rising costs. However, the cash value is invested and doesn’t have a guaranteed rate of return.
Term Life Insurance
Term life insurance is not a permanent policy. Instead, it will have an active term. Terms are generally 10, 20, 25, or 30 years. If you pass away while your insurance is active, the policy will pay the death benefit. However, if you outlive your policy, you will likely have the chance to convert it to a permanent policy. Term coverage is more affordable and allows for mid-term financial planning.
Get a Quote for Life Insurance
Even if you have basic life insurance from an employer, you might not have enough coverage to protect your loved ones. Speak to a licensed agent to find out how much you need and get a free quote.
You can find the life insurance you need at Freeway at a great price. Don’t wait any longer to start your free quote online, over the phone, or at one of our offices near you.
