Many of us may already have an idea of what life insurance is. A simple way to understand it is that life insurance provides a lump sum of money to your beneficiaries in the event of death, allowing them to continue toward their financial goals. It gives a peace of mind that they will be taken care of even when you are no longer around.
How does it work?
Life insurance becomes easy to comprehend once you understand the common components of an insurance policy, how to apply, the different types of policies and the costs involved.
Life insurance consists of these four components:
Policyholder - The person who owns the life insurance policy. Typically, if the policyholder dies, the death benefit is paid out, but it’s possible to take out a policy on someone else.
Beneficiary - The person, people or institution(s) that receive money if the policyholder dies. There can be more than one beneficiary named on the policy.
Premium - The money paid monthly or annually to keep a policy active (or “in-force”). If you stop paying premiums, the policy lapses.
Death benefit - The money paid out upon the death of the policyholder. Life insurance goes into effect as soon as you make your first premium payment, meaning you’re eligible for the death benefit as soon as the policy is in force.
What are the different types of life insurance?
Life insurance policies may differ in length of policy, cost and extra provisions depending on the type of coverage. Typically, life insurance is divided into two types: term and whole life.
Term life insurance
Term life lasts for a predetermined period of time, known as the term. When the term is up, the policy expires. This is usually the more affordable type of life insurance, and lasts only as long as you need it to cover debts and provide for beneficiaries.
Whole life insurance
Whole life insurance on the other hand does not have an expiration date and lasts for as long as the policyholder pays the premiums. Whole life policies also carry a cash value component that acts as a sort of investment vehicle. The cash value portion, along with fees, raises the price of permanent policies compared to term.
Five simple steps to apply for life insurance
Get free quotes - Comparing rates from different insurance companies allows you to make sure you are getting the most affordable policy. You never have to pay for life insurance quotes. (You can compare quotes from over a dozen life insurance companies with Insuree.)
Choose your policy - Take into account cost, benefits and advisor's customer service.
Medical exam - You may need to take a medical exam as part of the underwriting process.
Wait for approval - An underwriter will take all of the information collected to decide on a final premium rate, which should be similar to the quotes you received.
Sign your policy - Finally, sign your policy and send in your first premium payment.
Insuree editorial content is intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.