Life insurance is important if you have people who are dependent on you financially. If you were to die unexpectedly then your salary would no longer be available to cover regular household expenses such as â€˜â€™ mortgage payments â€˜â€™, and utility bills, and your family would suffer financial hardship as a result. It is designed to cover these expenses in your absence, and to ease the financial burden experienced by your family at what would already be a very difficult time.
To help, here are the things you absolutely need to know about life insurance:
If anyone relies on you financially, you need life insurance.
If you are a spouse or the parent of dependent children. But you may also require life insurance if you are someoneâ€™s ex-spouse, life partner, a child of dependent parents, the sibling of a dependent adult, an employee, an employer or a business partner.
There are four primary players, or roles, in a life insurance policy.
These roles belong to â€˜â€™the insurerâ€™â€™, â€˜â€™ the owner â€™â€™, â€˜â€™ the insuredâ€™â€™ and â€˜â€™the beneficiaryâ€™â€™. The insurer is the insurance company, responsible for paying out claims in the case of a death. The owner of the policy is responsible for premium payments to the insurance company. The insured is the person upon whose life the policy is based. The beneficiary is the person, trust or other entity due to receive the insurance claimâ€”or death benefitâ€”in the case of the insuredâ€™s passing.
Life insurance is a â€˜â€™riskâ€™â€™ management tool, not an investment.
While some policies have an investment feature that can offer a degree of â€˜â€™ tax privilege â€˜â€™, insurance is rarely an optimal investment. Thereâ€™s usually a better, more efficient tool for the financial task youâ€™re trying to accomplish.
There are two broad varieties of life insurance about which you should become awareâ€”term and permanent.
With term life means that you may very well pay premiums for decades and â€œget nothing out of it.â€ But thatâ€™s good news, because it means youâ€™re winning at the game of life.Permanent life insurance includes this same probability-of-death calculus, but also includes a savings mechanism. This mechanism, which is often referred to as â€œcash value,â€ is designed to help the policy exist into perpetuity.
Know your options when cancelling an existing life insurance policy so you donâ€™t leave money or coverage, on the table.
If you have a policy that isnâ€™t appropriate for youâ€”or you simply no longer need itâ€”itâ€™s important to proceed carefully. First, if you realize that you have overpaid for a policy that doesnâ€™t meet your needs, but you still need it, donâ€™t cancel the wrong policy until the right policy is in place. You can do so by requesting an â€œin-force illustrationâ€ and a â€œcost basis reportâ€ from your â€˜â€™ agentâ€™â€™.