A beginner’s guide to a Life Insurance Policy

A life policy is an insurance policy that will pay your beneficiaries upon your death. Although it’s not pleasant to think about, if you have dependents you need to consider how they will be financially supported when you pass away. Unlike other types of insurance, life insurance covers the one thing that we will all go through….the death of a loved one. If you and your spouse are uninsured, you will be leaving your children or dependents unsupported when you die. Don’t risk their future because of poor planning. Use this beginner’s guide to life insurance to educate yourself on the basics so you can get life policy that you need.

A life policy is a specific amount of money that your dependents will be paid when you pass away. Coverage can be as little as a few months of income, to several years to the estimate lifetime income that your family will be missing out on. Generally, the more you make and the more you contribute to the household income, the more your life policy will be. Your life insurance agent can help you figure out how much you should request for your life policy.

There are two basic types of life policies: term life policies and whole life (or permanent) policies. Term life policies expire after a certain amount of time, like 10 to 20 years. They have lower cost premiums each month and they can be obtained for a period of time where you have a lot of dependents or are making a large amount of money. As your children grow older and leave the house, or as your income decreases as you approach retirement, you can lower your policy or get a new term life policy that suits your needs. The only drawback to term life policies is that once they expire, the money you contributed is absorbed by the life insurance company.

Whole life policies build cash value as you contribute to them. Over time, you build up the account and it functions like a savings account with a high growth rate. You can hold onto whole life polices until the end of your life. The drawback to these policies is that they have much higher monthly premiums than term life policies.

There are a few areas that you need to be aware of when evaluating a life insurance quote or a life policy, no matter what type you choose to get. An important issue that creates differences between the costs of policies is the mortality assumptions. Mortality assumptions are the guidelines by which different companies determine their rates. Slight differences in these guidelines can make a big difference in the price of your policy. That’s why it’s so important to shop around.

Look for the surrender charge in the policy, if there is one. This is the rate that the life insurance company will charge if you terminate the policy. If you’re choosing a whole life policy, look for cash value projections. These details will explain to you how much money the company expects your policy to earn in interest over the length of the policy.

A qualified life insurance agent can walk you through all these important details. Now that you understand the basics, you’ll be able to communicate your needs and understand the important aspects of your policy.