What Is Basic Life Insurance?
A basic life insurance policy is a contract between the policyholder and the insurance provider which obligates the provider to pay a death benefit upon the death of the named insured. The death benefit is then paid to the to the describd beneficiaries. This is in exchange for premiums the policyholder or policyowner pays to the insurance provider.
What Does Life Insurance Coverage provide?
Some things life insurance can provide are:
1. Everyday Expenses and Monthly Bills
Chances are, you’re paying for a mortgage or rent, utility bills, and essential household items like groceries, cleaning items, and more. These bills can be paid using a life insurance payout. This enables your family to maintain their current standard of living in the event of your death.
2. Child or Dependent Care
A Life insurance death benefit will cover different types of child care expenses such as daycare, in-home aides, after-school programs, tuition and more. These costs are essential to take into consideration. If the primary income producer should die, the spouse might have to return to work in order to care for the children. If the parent who currently stays home with the children should pass away, the other spouse would have to pay for the childcare services the stay at home parent previously provided.The
3. Co-Signed Debt
Life insurance will help cover any co-signed debts such as:
- Credit cards
- Private student loans
- Other types of financing
Co-signing a loan with another person leaves you responsible for that debt in the event of their death.
4. End of Life Expenses
A loved one’s unexpected death creates an instant financial burden for a family, which is the funeral and burial cost. Many people will add end-of-life expenses coverage into their basic life insurance policy to help cover the funeral costs and other end of life expenses.
What are the Different Types of Life Insurance?
Different types of life insurance are:
1. Term Life
Term life is the easiest and simplest type of life insurance. The basic life insurance payout only pays if death occurs during the policy’s term, which can be anywhere from one or more years dependent on th policyholders needs. There are usually no other benefit provisions in most term policies. There are a couple of basic term life insurance types which are level and decreasing term:
- Level term: This is where the death benefit remains the same throughout the policy’s duration.
- Decreasing term: The death benefit lowers over the course of the term, typically in 1-year increments.
2. Whole Life or Permanent Life
Whole or permanent insurance will pay a death benefit upon the death of the policyholder. There are several primary types of whole or permanent life insurance:
- Universal Life: This type, which is also referred to as adjustable life, offers far more flexibility than a traditional whole life policy. The cash value account (savings vehicle) typically earns you a money market interest rate. Once you have money accumulated in the account, you’ll have the choice to alter the premium payments, provided you have sufficient money in the account for covering the costs.
- Traditional whole life: Both the premium and death benefit are made to remain the same (level) throughout the policy’s life. As the insured individual ages, the cost per $1,000 of the benefit goes up and gets fairly high when they live to 80 years old and beyond. The insurance company keeps the premium level. They do this by charging a higher premium in the earlier years required to invest that money, pay claims, and use the funds to supplement the level premium for helping pay the life insurance cost for older individuals. By law, “overpayments’ like these, after reaching a specific amount, need to become available to the holder of the policy as a cash value if they choose to not continue with the initial plan. This “cash value” isn’t an extra benefit under the policy, but rather an alternative.
- Variable Life: This policy combines a savings account to invest in bonds, stocks, and money market mutual funds with death protection. The policy’s value grows faster but with more risk attached. If the investments don’t do well, it might decrease the death benefit and cash value. There are certain policies where your death benefit won’t fall below a certain level.
- Universal Variable Life: This combines both variable and universal life policy features. You get both the rewards and risks characteristics attached to it, along with the capability to adjust death benefits and premiums characteristic of universal life insurance.
Each type has variations within the specific policy.
Who Should Purchase Life Insurance?
Life insurance offers the beneficiaries and surviving dependents financial support upon the death of the insured. Some examples of individuals who might require life insurance are:
- Parents with children: The death of a parent can result in loss of caregiving or income that can lead to financial hardship. Life insurance helps ensure the children are financially supported until they’re able to support themselves.
- Parents with adult children with special needs: Life insurance ensures children with lifelong care needs are financially supported if the parents should pass away.
- Families who can’t afford the funeral/burial expenses: To honor a loved one’s passing, a small life insurance policy could help fund the funeral expenses.
- Young adults looking to lock in a low rate: Insurance premiums are lower the younger you are.
What Life Insurance Won’t Cover
There are certain situations where insurance companies will refuse to pay the beneficiaries. These include fraud, an expired policy, criminal activity, and specific other exclusions. Be sure to discuss these in further detail with an insurance agent.
Now that you understand the different types of life insurance, what it covers, and who should buy it, you’ll want to sit down with one of our insurance agents to go over how much to get and how much it will cost. Typically, it’s suggested to purchase around 10 to 15 times your income.