The concept of life insurance involves a contract between an individual and an insurance provider. In this agreement the individual asks the insurance provider to give him financial coverage that, should he die prematurely, the provider will pay a set amount of money out to whoever the individual identifies as a beneficiary.
In return, the insurance provider charges a monthly or regular fee for taking on the risk, and all of that money ends up being pure profit for the provider if the individual lives and doesn’t due during the contract period. Afterwards, the two parties go their separate ways owing nothing to the other.
Life Insurance Defined
The above is the simple version or life insurance and often represents the most common types of agreements named term life insurance. There are variations which increase the length of a coverage contract, as well as the cost, but also create ways to build a financial nest egg as well. These versions are generally named whole life insurance.
The purpose of both versions is to provide a financial safety net for loved ones if a person dies prematurely, particularly a sole-income earner in a household. The amount of money involve usually needs to be enough to pay for the following:
- Cover burial costs of the deceased
- Legal expenses of probate of the deceased’s estate
- Provide living expenses for the survivors for years afterwards
You can find more basic information life insurance at RateZip.com, a financial comparison website.
Whole Life Insurance
Some of the better life insurance plans are not limited to a set time period, but are in place for the duration of a person’s life. Known as whole life insurance plans, these agreements often cost the most but they have two benefits:
- They don’t rise in cost over the life of the plan, even as a person gets older.
- They often include an ability for some of the payment for the coverage to go to a savings account, which can come in handy in later years or as a nest egg for a loved one, in addition to the coverage payout.
You can get a basic idea for how much life insurance, including whole life, costs by using a tool that compares quotes from multiple insurance companies, such as the one found here.
Final Thoughts
Many financial advisers will automatically tell people they should have a life insurance within their financial portfolio. However, the first question on this topic to always answer before buying any coverage is to ask if it is really needed.
If there is no one to leave the financial benefit for, then paying for a policy is a waste of money. A person is better of keeping his funds in his bank account and then leaving the assets to a charity or a good friend via a will or trust.
Paul Everett is a financial writer located in New York City. His other hobbies include yoga, traveling, and jazz music.
