Life Insurance – Coverage, Benefits, And Everything You Need To Know

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life insurance

What is the first thing on your mind when you think of life insurance? It’s about the insurance money you will get after death, right?

But let me tell you one thing – it is a far broader term than just. Your insurance does not only cover various expenses that will be billed to you and your family name after your death, but it will also consist of things much more than that.

Therefore, to help you make the best decisions regarding your insurance, we have come up with this guide to help you understand more about what this insurance covers and what benefits your family can reap from it after your death. So read on to find more details.

What Is Life Insurance?

what is life insurance

Before you delve deeper into life insurance, let us first briefly talk about what insurance is. Insurance refers to a contract signed between you (referred to as the policyholder) and an insurer.

Then the insurer provides various policies to people interested in becoming policyholders. If a person agrees to abide by the terms mentioned in the policy, then a contract is signed between them.

As per the regulations of this policy of life insurance regulations, the policyholder must pay a certain amount of money at fixed monthly intervals to the insurer. This amount is known as the premium. Depending on the amount of compensation paid, the insurer must pay back the premium money to the policyholder’s family after their death.

According to the policy, the policyholder must truthfully disclose all details about their previous and current medical conditions. Depending on these situations, the insurer can agree to the terms and conditions of the policy or even deny doing so.

A similar type of premium is paid by beneficiaries to the insurers when it comes to cases of motor insurance, like car insurance or bike insurance.

Types Of Life Insurance

types of life insurance

The various types of life insurance are:

1. Term Life Insurance

Term life insurance refers to insurance that is temporary and lasts only for a certain amount of time. This can be as low as a few months to even more like a decade or two. Typically, term life insurances last for a maximum of 30 years.

Throughout the term prescribed in the insurance policy, the policyholder makes periodic payments to the insurance company in return for an amount that the insurer will pay to the policyholder’s beneficiaries – their family – after their death.

Typically, term life insurances are the most affordable premiums paid. However, some of the best life insurance companies allow policyholders to extend their terms and convert them onto permanent life insurance.

2. Whole Life Insurance

Whole life insurances are a type of permanent life insurance where the insurance policy stays active till the day the policyholder dies or they stop paying their premiums. In such insurances, the policy premium and the death benefits stay fixed throughout the term.

However, the most noticeable aspect of whole life insurance is the cash dividends paid by the insurer to policyholders. This gets paid out because insurance companies like MetLife Insurance, Gerber Life Insurance, and Colonial Penn Life Insurance use the premiums paid by policyholders to fund their business operations. Therefore, you can say that these dividends are somewhat akin to share dividends that the policyholders can withdraw.

3. Universal Life Insurance

Similar to Whole Life insurances, universal life insurances (UL) and indexed universal life insurances (IUL) is permanent insurance policies. However, the rate of dividend paid to the policyholder does not remain the same throughout. Instead, these dividend rates are dependent on the market rates.

If the insurance company is doing well in the market and making a lot of profits, then the rate of dividend will go up. Unfortunately, the opposite also holds true.  However, most standard universal insurance policies typically have a minimum dividend that they should payout.

What Does Life Insurance Cover?

what does life insurance cover

You must be wondering, what do these life insurance policies cover? The list of expenses that the insurance company will bear for the policyholder after their death are:

1. Bills And Expenditures

Many types of monthly expenses like rent, mortgage fees, grocery and utility expenses, and lots more might be paid by the insurance company like Globe Life Insurance and Gerber Life Insurance. This is why we recommend that you withdraw money from the policies that are ten to fifteen times the family’s income.

We recommend doing so since it will help out your family after your death by helping them lead economically content lives for a few years at least.

2. Debts And Loans

If the policyholder was paying interest for loans and mortgages, then the insurance company should be fully responsible for the entire payment of the loan money. However, some general insurance companies agree to pay a portion of the loan instead of the whole loan. This also includes co-signed loans shared by surviving family members.

3. Education Fees

Since your children’s education is one of the essential duties of a parent, your education loans and education fees for the schooling and college of your ward will be taken care of by the insurance company.

A survey reported that the average college costs for a four-year term in the USA are:

  • Public district colleges: $3,500
  • Private colleges: $32,000
  • Public out of state colleges: $24,000
  • Public in-state colleges: $10,000

4. Funeral Expenditures

The insurance company might pay the expenses of your funeral. This includes burial costs and charges for holding the funeral and other services, as high as $8,000.

5. Child Care Support

If your child is left with no parents or your partner does not have any stable income, then the insurance company provides the expenses for taking care of them. This includes their nannies, daycare houses, and other child expenses.

6. Medical Expenditures

The insurer will give out medical expenses borne by the health insurance policy to surviving family members for their needs will be taken out of the total insurance claim. This is crucial because your remaining family members can suffer from severe terminal illnesses like cancer.

Why Should You Have Life Insurance?

why should you have life insurance

After reading the previous sections, you must be asking – is life insurance worth it? These insurances might not be needed at all under the circumstance that your family will be well off with the savings and continued earnings they will receive after your death.

Therefore, the main pros and cons of life insurance are:

Benefits

The main advantages of life insurance are:

  • All payouts from life insurance policies are exempt from all taxes.
  • Your beneficiaries won’t have to worry about expenses that will get covered by the insurance policy.
  • Your funeral expenses will be paid by the best life insurance company Sproutt.
  • The insurers will bear all expenses for chronic and terminal illnesses faced by your beneficiaries.
  • You can add the money from your insurance policy to all the savings you have made till your retirement.

Drawbacks

The main disadvantages of life insurance are:

  • It can be expensive if you start paying premiums when you become older, especially senior life insurance. Therefore, start paying at a younger age, preferably when you have settled down.
  • Permanent life insurances are pretty expensive for most middle-class people.
  • There are many clauses to your life insurance policy that your insurer can exploit to deny your beneficiaries money.

Frequently Asked Questions (FAQs)

1. What Is The Average Life Insurance Cost Per Month?

For example, a typical life insurance quote of $27 per month is the average.

2. What Is Life Insurance Used For?

It provides extra financial support to your surviving family members after your death.

3. At What Age Should You Buy Life Insurance?

You should start buying life insurance from your mid-20s.

4. Who Would Not Need Life Insurance?

If you do not have a family or any surviving family members, then you do not need life insurance.

Bottom Line

Life insurance is an essential investment that is required to be invested upon to ensure that your remaining family members can pay for their expenses in your absence. Therefore, it is one of the most crucial investments you should consider in your 20s.

If you want to know about other types of insurance, read our other articles here at MoneyOutlined!

Also Read:

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Debamalya is a professional content writer from Kolkata, India. Constantly improving himself in this industry for more than three years, he has amassed immense knowledge regarding his niches of writing tech and gaming articles. He loves spending time with his cats, along with playing every new PC action game as soon as possible.

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