The Importance of Life Insurance

Author: Artem Hihach

Death is a painful cause that can hit anyone without prior notice. It doesn’t care whether you are poor, rich, or wealthy. However, you can insure your life to avoid financial catastrophe for your loved ones, whether you are dead or alive.

What Is Life Insurance?

Life insurance is a policy between an insurer and an insurance company. This agreement or policy ensures the insurance company pays a particular sum of money to the beneficiaries of the deceased. This money is charged as premiums from the policyholder during their lifetime.

Basically, there are two types of life insurance policies

1. Term Insurance

2. Whole Life 

1. Term Insurance

This insurance policy covers 5, 10, and 20 years. The insurance dividend is made in a single amount if an accident occurs to the insured person during the validity period of the policy.

If there is no misfortune, the policy will be closed (as with car insurance). This is the easiest and most inexpensive survivor’s insurance plan. Furthermore, it can be extended to a whole life policy at the request of the client.

2. Whole Life Insurance

This plan provides ultimate coverage for the life of the insured. In this plan, the insurance company often accrues cash dividends of 3% to 5% per annum to the depositor. If the depositor doesn’t make a withdraw from the payment made, the beneficiaries will receive the full amount of the deposit after the death of the insured.

According to New York Life, the premium for life insurance is fixed and doesn’t change until the end of the deposit which is calculated at the time of insurance. This calculation is usually based on the current client’s health and other risk factors. Therefore, it is advised to take out whole life insurance when you are young and healthy; the premiums are usually lesser during this age. Also, future health issues or lifestyles will not affect your existing policy.

The Importance of Life Insurance

1. Financial Protection

Financial Protection for the family in case of death of the breadwinner. This is the most obvious reason why people opt for life insurance. After the death of the insurer, the insurance company will pay out death benefits to the registered beneficiaries of the insurer. In most cases, this payment is enough to take care of the financial life of the beneficiaries.

2. Mortgage Protection

An insurance plan can be used as extra support if you’re paying off your mortgage. In the event of a job loss or other unforeseen circumstances, mortgage premiums can be paid off with life insurance dividends. And if the mortgage payer dies, his insurance can pay off the loan and help the family keep the house.

3. Retirement Planning, Educational Planning, and Long Term Care.

This insurance policy is usually activated when the insurer retires or when the insurance purpose becomes active. For instance, if an insurance policy was made for the college tuition or retirement plan of beneficiaries or insurer, the plan becomes active when the need arrives. This plan is mostly for long-term care, therefore, it is recommended to register when you are young and healthy. 

Conclusion

Life insurance is a vital part of financial planning. It is not a waste of money, but a necessity for people who love their families.