It is important to understand the basics of life insurance if you intend to establish a contract with an insurance company. You have to determine if you really need it, the type of insurance that suits your needs, the benefits that your beneficiaries will receive and overall become familiar with the whole process. It should not be difficult to grasp all the details because you have certainly dealt with other types of insurance in the past, such as car insurance.
How does it work?
The concept of life insurance is quite simple. A company receives a certain amount of money and in return, it covers an unexpected event that might threaten your life. You establish a payment method, monthly, annually or even twice a year that you must observe. Practically, life insurance represents an agreement between you and the company in question. As a result, you have the peace of mind that if something deathly happens to you, the named beneficiaries, in most cases family members, will benefit from the money. It is no different from car insurance, for example. When you own a vehicle, you must be precautious and think ahead. An accident will happen unexpectedly and it will bring many damages including financially. For this reason, by making a contract with an insurance company, they take care of all the costs.
Who needs it?
You should think about life insurance if you are the main support in the house, if you have dependents or you take care of an adult with special needs. In addition, if you want to ensure the future of your kids after your death, you should definitely look more into the concept of life insurance and establish the option that best suits your and their interests. Those who prefer to live carelessly can skip this step.
How do beneficiaries receive the money?
They have the possibility to choose between receiving the money immediately or in installments. Regarding the installments, the company holds the money over time and it offers the beneficiaries several choices when it comes to receiving them including life income, fixed period and fixed amount. By choosing the life income option, the beneficiary receives regular payments for the rest of his years. The fixed period means that the beneficiary will receive payments for a certain period while the fixed amount means that he will receive a designated amount regularly until the payout is exhausted.
Types of life insurance
The companies provide two main types of life insurance: term insurance and universal life insurance. The first one allows you to beneficiate from temporary protection, and for this reason, it is more affordable. After the agreement term is complete, you are able to renew it or transform it into a permanent policy. Universal or permanent life insurance is expensive and if you cannot afford to pay it all at once, you have the possibility to opt for installments. The bright side is that you have the freedom to use a part of the money while you are still alive for investments or loans.