If something happened to you, would your family be able to survive financially? This is a question that many people don’t want to think about, but it’s important to have a solid financial plan in place in case the unthinkable happens. In fact, life insurance is valuable to 64% of Canadians.
If you are ready to learn how life insurance works and why you need it, keep reading!
What is Life Insurance?
The purpose of life insurance is to financially protect your loved ones in the event of your death. The death benefit from a life insurance policy can be used for things like funeral expenses, outstanding debts, or to help support your family’s lifestyle.
No one likes to think about their own death, but it’s important to have a life insurance policy in place in case something happens to you. If you are the primary breadwinner for your family, your death could have a significant financial impact on them. A life insurance policy can help to ease the financial burden on your loved ones in the event of your death.
There are also other reasons why you may want to consider purchasing life insurance. For example, if you have a mortgage or other debts that would need to be paid off upon your death, life insurance can help with that.
Additionally, if you are the caregiver for a dependent, life insurance can provide financial security for them in the event of your death.
Read More: What is Financial Planning?
How Does Life Insurance Work?
Upon purchasing a life insurance policy, you will be asked to choose a beneficiary. This is the person who will receive the death benefit from your policy in the event of your death. You can change your life insurance beneficiary at any time, so it’s important to keep your beneficiary information up-to-date.
Your life insurance policy will also have a death benefit amount. This is the amount of money that will be paid out to your beneficiary in the event of your death. The death benefit amount will depend on the type of life insurance policy you purchase and your age.
When you die, your life insurance will payout to your beneficiary. They can then use this money to pay for things like funeral expenses, outstanding debts, or to help support their lifestyle.
It’s important to note that life insurance policies do not have cash value. This means that you cannot withdraw money from your policy while you are alive.
There are many benefits of life insurance, including:
– Provides financial protection for your loved ones in the event of your death
– Can be used to pay off debts, such as a mortgage
– Can help to support a dependent’s lifestyle
– Easy to purchase and manage
If you are looking for a way to help financially protect your loved ones, life insurance may be a good option for you. There are many different types of life insurance policies available, so it’s important to do your research to find the right one for you.
What Are The Main Types of Life Insurance Policies?
Depending on your personal needs, you can expect to come across two main life insurance policies: term and permanent life insurance.
Term Life Insurance
A term life insurance policy is a type of insurance that provides coverage for a specific period of time, or “term”. If you die during the term of your policy, your beneficiary will receive the death benefit. If you live past the term of your policy, it will expire and you will not be able to renew it.
Permanent Life Insurance
A permanent insurance policy is a form of coverage that covers you throughout your life. If you die while the term of your policy is still in effect, your beneficiary will get the death benefit. It will continue to give protection for you and your beneficiaries if you live beyond the expiration date of your policy.
You can choose from several types of permanent life insurance:
Whole life insurance
A whole life insurance policy is a type of permanent life insurance that covers you for your entire life. It has a fixed premium and a death benefit that is guaranteed to be paid out.
Universal life insurance
Universal insurance is also a form of permanent life insurance coverage, but it offers more flexibility than whole life insurance. With universal life insurance, you can change the amount of your premium and the death benefit.
Burial insurance is a low-cost whole life policy with a modest death benefit, usually between $5,000 and $25,000. This type of insurance is designed to only cover funeral expenses and end-of-life costs.
Survivorship life insurance
A survivorship life insurance policy covers two people, usually a married couple. The death benefit is not paid out until both people have died. Usually, survivorship life insurance is part of a larger financial plan to fund a trust or pay federal estate taxes.
The type of death insurance policy you choose should be based on your needs and goals. If you need coverage for a specific period of time, such as when your children are young or when you have a mortgage, term life insurance may be the right choice for you.
If you want lifelong protection for yourself and your beneficiaries, permanent life insurance may be a better option. Talk to an agent to learn more about the different types of life insurance policies and which one is right for you.
How to Choose a Life Insurance Coverage Amount
The death benefit amount you choose for your life insurance policy should be based on your needs and goals. You’ll want to consider things like your current income, debts, funeral expenses, and the future financial needs of your beneficiaries.
Generally, the simplest approach to determine how much coverage you’ll require is to combine all of the costs you’d want to protect and deduct the amount your family will spend on those expenses.
The resulting number is the amount of life insurance you’ll need. It may appear large, especially if you’ve taken into account income replacement for many years ahead. Life insurance quotes are still accessible at no cost, so it’s not a bad idea to figure out how much coverage you’ll require.
In case you find your life insurance coverage too costly, buy what you can afford at the moment so you can secure a good rate. You have the option to purchase more later, however, keep in mind that your rate will depend on your age and medical conditions you acquire in the future.
How to choose a beneficiary?
When you purchase a life insurance policy, you will need to choose a beneficiary. This is the person who will receive the death benefit from your policy in the event of your death.
You can choose anyone you want as your life insurance beneficiary, including family members, friends, or even a charity. It’s important to choose someone you trust and who will be able to use the death benefit money in a way that meets your goals.
So, why is life insurance important? First of all, it can provide peace of mind in knowing that you and your loved ones are taken care of financially if something happens to you. Additionally, life insurance is a useful tool for other specific goals, such as paying off a mortgage or funding a trust.
Whatever your reasons may be, life insurance is an important tool that can help you protect your family and finances.
Insurance companies make money by charging premiums for coverage and investing the premiums in a variety of ways. They may invest in stocks, bonds, or other types of securities. They may also use the money to purchase life insurance policies from other insurers. This is known as reinsuring.
Life insurance can cover many different things, depending on the type of policy you have. Some policies may cover death from an accident or illness, while others may only cover death from an accident. It’s important to read the fine print of your policy to see what is and isn’t covered.
Natural death is not covered by life insurance. Life insurance covers death from an accident or illness. If you die of natural causes, the policy will not payout. However, some policies do offer a benefit for accidental death. Check with your agent to see if this is available on your policy.
Life insurance is a policy that provides financial protection in the event of your death. It can help pay for things like funeral expenses, debts, and other costs that may be incurred after you die.