3 Basics to Know About Life Insurance

When you leave your teen years behind and graduate from high school or college there are so many adult responsibilities that you have to take on. The carefree days of having lots of time to hang out with friends are all too soon replaced by long hours at your job, soaring monthly expenses, and learning to make your own way in the world. It’s also the time when lots of people get married and think about starting a family. When you have a spouse or partner, your perspective starts to change. 

Then, if children come along, everything is really re-written. You now have an almost sacred obligation to truly stand as their protector, making sure that you keep them safe in this very uncertain world. It’s an important time to look at life insurance coverage and evaluate options that let you provide for your loved one at all times. But what should you know before taking out coverage? Are all policies the same? Let’s look at some of the basics that you should know. 

Tap Into the Value of Your Life Insurance

By purchasing a policy, you are taking proactive steps to financially care for your family. In addition to providing a death benefit if you were to pass on during the time the coverage is in place, you may also be able to tap into the value of your policy by pursuing a life settlement offer. With this form of settlement, you can get a payout that is less than the death benefit but above the surrender value associated with the coverage. The buyer of the policy is responsible for paying the premium from that point forward and, in essence, becomes the beneficiary when you pass on. It’s possible to go online and use a calculator to see the estimated cash value, and you can also find a guide that explains how the process works.

Whole Life Insurance

This form of coverage is also known as permanent life insurance since these policies don’t have an expiration date. There are two parts to remember – a death benefit and a savings portion that accrues value and is tax-deferred. When you make each monthly payment, part of what you pay is directed toward the accumulation of the cash value. These policies are typically more costly than the other major alternative, term life, for the same death benefit that would be paid out. Overall, this form of coverage is more complex because you have to consider factors like surrender fees, interest, and tax implications too.

Term Life Insurance

Coverage under a term policy is much simpler, in a way. This contract is written to last for a specific number of years and then it expires. Basically, you are betting on your health during that time. If you were to pass away while the coverage was in place, then the beneficiary you designated would receive the death benefit amount. Unlike whole life, which builds up cash value, the payment on the term policy funds the death benefit only. In the event you pass on during the coverage, benefits could be paid out as a lump sum, an annuity, or in the form of monthly payments.