What is life insurance, and why is it important?
Life insurance is a form of insurance that pays out a sum of money either on the insured person’s death or after a set period.
Many find life insurance difficult to discuss and complicated, however, this couldn’t be further from the truth. Life insurance is not required for everyone, especially if you don’t have children, family members, or others reliant on you.
For example, if you live alone and no others are financially dependant on you, then you may not need to invest in it. However, if you are the sole provider of income for your household, with others reliant on you, purchasing this insurance is essential.
In the event of the insured individual’s death, the insurance company pays out a set amount of money to provide financial support to those previously reliant on the individual, such as the insured person’s family.
How is life insurance determined?
The amount of money paid out to the family, or those reliant, is dependant on the coverage selected by the insurer. More complex policies cover specific payments, e.g., mortgage, rent, or even bills.
However, there are two main types of life insurance: ‘term’ and ‘whole’ life insurance policies. Term policies are valid for a select period, e.g., five, ten, or twenty years. These policies only payout to those dependant if the insured person dies during the policy.
On the other hand, whole-life policies payout regardless of when the insured person dies, so long as payments are kept up with.
What is not included?
Life insurance does not cover financial protection against illness or disability, even if this is a terminal illness. The payout will not be in effect until the insured person dies, but some policies contain a terminal benefit. To protect against disability, you should purchase disability insurance.
Furthermore, some life coverage policies do not cover death from drug or alcohol abuse, specific lines of work, or those involved in risky or dangerous sports.
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