A life insurance policy is a contract with an insurance company. In exchange for premium payments, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured's death.
Typically, life insurance is chosen based on the needs and goals of the owner. Term life insurance generally provides protection for a set period of time, while permanent insurance, such as whole and universal life, provides lifetime coverage. Life coverage can provide you with the following benefits:
- • Replacement income for dependents - If you pass away, life insurance can replace your lost income to keep your family from financial ruin. For example, if you unexpectedly perish, leaving behind a spouse and young children, they will be monetarily supported through your life policy. This coverage will cover any financial obligations you have left behind.
- • Personal Liability - Life insurance can cover funeral and burial costs, as well as final medical expenses and debts you may have as a result of your death.
- • Create an inheritances for your heirs- You can name your loved ones as beneficiaries on your life insurance policy to create an inheritance for them if you pass away.
- • Make charitable contributions- You can name a charity the beneficiary of your life insurance policy. This contribution will be much larger than the cash equivalent donation.
- • Create a source of savings and earnings- Some types of life insurance can be paid as cash value if the policy owner outlives the coverage term. As you pay your life insurance premiums, the payments will accrue interest over time. This cash benefit can be withdrawn or borrowed at the owner’s request.