Life insurance may sound an intimidating concept to some, in that it mainly tackles the need to finance everything that relates to a person’s death. But being an essential element of personal finance, it’s important for anyone to understand what it takes to have life insurance.
Preparing for life after the death of a household member can be a truly daunting experience that can befall on any person, regardless of their social or financial standing. It becomes worse when the person who dies holds the role of being among the household's breadwinners. From a financial standpoint, it can herald a disastrous turn of events for those who are bereaved.
That's precisely what life insurance is for - it guarantees your dependents' well-being when something awry happens to you. A lot of people may be avoiding the topic of death, but the reality is that it provides for a lot of financial implications that can be prepared for with the help of life insurance. Contrary to popular belief, the process of making an informed choice for life insurance can be simplified.
Life insurance, in that sense, isn't all that difficult to prepare for, provided that you have the proper information in your hands that would surely redound to the benefit of your loved ones when the time comes for you to say goodbye. Here's a brief yet comprehensive rundown of the five things you need to know before you get life insurance.
1. The key roles in a life insurance policy
Every life insurance policy defines at least four key roles. The (1) insured is the person whose terms of the life insurance policy is based. The owner (2) is the person who's paying for the premiums of the life insurance policy. The (3) insurer is the one tasked to pay out claims upon the insured's death. The (4) beneficiaries are the persons or entities named by the insured as those entitled to receive claims.
2. The necessity of life insurance
Only one simple circumstance justifies the need for life insurance: when you have dependents looking forward for your financial support. Your dependents aren't strictly limited to your family - your former spouse, employees, or business partners, as the case may be. If anyone's bound to suffer financial consequences from your demise, then you certainly need life insurance.
3. Two varieties of life insurance
Term life insurance, the first variety, bases its premium amounts around a specific term - may it be 10 years, 20 years, or more, within which the insured is likely to die. Permanent life insurance, the second variety, may also involve payments within a specific term, but involves a "cash value" that allows it to exist even beyond the insured's death, so as to provide more financial benefits to dependents.
4. Life insurance as an investment tool
Unlike what some may think, life insurance isn't exactly a viable investment tool. At best, life insurance is more concerned with providing your dependents with ample financial cushion after your death. Investment features in life insurance can be regarded as purely additional in nature - a life insurance policy that allows you to invest is thus not necessarily better than one that's without investment features.
5. Costs for life insurance
Life insurance may be costly at most times, but some are actually inexpensive and helpful at the same time. Depending on the terms that fit your circumstances, different kinds of life insurance policies may be less costly yet provide you with ample coverage at the same time. Also, the healthier you are, the better the terms - and cheaper the premiums, your life insurance policy will have.