What Is Life Insurance?

A life policy is a type of policy that provides benefits to spouses, children or others if the insured person passes away. Depending on the type of policy, the death benefit may increase, decrease or go away after time.

How Does it Work?

A life policy pays out a lump sum to beneficiaries if the person who is insured by the policy passes away. If the insured dies, it usually is up to beneficiaries or the person handling the deceased’s estate to make a claim with the insurer, which will then confirm that a death has occurred and that it was not under any sort of circumstances that would void the coverage. Some policies also provide what are called “living benefits,” which means they pay out early to people diagnosed with terminal illnesses.

Though a life policy can be important for anyone, it is an especially good idea for people who are supporting others. This can include a person whose spouse doesn’t work, parents and those who provide for a vulnerable adult. Basically, if someone else would suffer financially if you weren’t around, then you should have life insurance.

Different Types of Coverage

There are two main types of life policies: Whole life and term life. Whole life policies are in force as long as you pay the premiums and may also accrue a cash value that you can tap or take a loan from. Term life policies are in force for a certain period of time, such as 20 years. After that, they expire and provide no benefits.

Major Benefits

The main benefit to having a life policy is financial protection for your loved ones in the event you pass away. An additional benefit is cash value if you have a whole life policy.