The life insurance terms you need to know - and why they matter
Life insurance protects your family if you pass away unexpectedly, leaving them without your financial support. To ensure you get the right life insurance policy to protect your family, it’s important to understand the basic life insurance terms and how they work together to give you the protection you need in the event of your death. This guide will walk you through exactly what each term means, why it matters and when you should care about it. Let’s get started with...
Why get life insurance?
Life insurance is an important part of any financial plan. We tend to think of it as a safety net for our families in case something happens to us, but it can also play a big role in helping us achieve other goals—like paying off debts or funding retirement. When we buy a policy, what are we really buying? Understanding these details will help ensure that when you get life insurance, you're making an informed decision that makes sense for your unique situation. Your Next Step: Here's how much coverage you might need in order to fulfill your specific goals; by now you should have all of your questions answered about what exactly life insurance is. Before You Buy: This short quiz can help determine if having life insurance makes sense for your personal situation.
How much coverage do I need?
This is a tricky question because there are so many factors that affect it. How much debt do you have? What kind of coverage do your other assets provide (like homeowners or renters insurance)? Your needs will be different based on your family’s situation, as well. A good rule of thumb: Determine how much money your family would face if something happened to you, but if you can’t figure out how much coverage that is—and for some people it’s hard—consider buying more than that amount. It’s an investment in peace of mind. Here's another tip: While coverage amounts often vary by term length, most policies max out at around $500,000.
Life Insurance Terms Explained (Age, Term, Level Premium, Universal Life, Whole Life)
Knowing which type of life insurance is best for your family requires understanding what each type of policy offers. Term Insurance: This kind of policy provides a death benefit (the coverage amount) for a specific period of time, such as 10 years. If you die during that period, your beneficiaries will receive a check from your carrier. If you live beyond that period, however, it simply expires, and no money is paid out at all. The premium for term life policies is affordable but will increase over time because it's tied to an inflation rider (though if interest rates are low it may not be a big jump). Universal Life: This policy works similarly to term insurance in that it provides coverage only while you pay premiums but unlike term policies, there's no fixed expiration date.
Final Thoughts
The purpose of a life insurance policy is to help your loved ones in times of need, specifically when someone is killed or dies as a result of an accident. So it's only natural that most people want to make sure their survivors are financially taken care of. Unfortunately, there’s no way for a policyholder to predict who will pass away or when it will happen. Instead, he or she buys coverage as a means of protecting his/her family against unexpected death expenses.