Life Insurance: Five Basic Things You Need to Know

“A man who dies without adequate life insurance should have to come back and see the mess he created.” -Will Rogers

Life insurance is an integral pillar when it comes to personal finance. It affords adequate financial solutions to your family and beneficiaries should anything untoward happen to you. In a sense, an individual who is insured is an individual who has enough sense and forethought to prepare for anything in the future. As it is, it would be easy to see why it is a crucial—even vital element to every household. Unfortunately, even with its universal applicability and pecuniary appeal, a lot of individuals would find themselves resisting getting themselves insured. In fact, any talk of getting insured and having any sort of health care plans are often met with skepticism or worse, are downright dismissed. While the reasons for that may not be entirely clear, perhaps it stems from life insurance’s complexity itself. If perhaps, some confusion were met with clarity and sufficient proper information, perhaps more people will be more receptive to getting one. If you are ambivalent as regards getting yourself insured, maybe reading a few things you must absolutely know about health insurance would help you make the better choice for you and your family.

Here are some things you should know about life insurance.

1.) If anyone depends on your financially, you need insurance

An individual with a family or even just a spouse would require life insurance. In fact, one could even argue that it would be virtually obligatory when you have some dependents. However, life insurance is not limited to parents with dependents as you may also require life it if you are someone’s life partner, a child of dependent parents, a sibling of a dependent adult, employee, etc. If you are financially independent or stably retired however with no dependents, life insurance is of no necessity to you. But you may utilize it as a financial tool.

2.) Life insurance does simply apply monetary value to someone’s life

Apart from that, life insurance is a necessary tool that would help compensate for the unavoidable consequences that would occur in the event of the loss of life. Those who are left behind would be able to cover the costs of expenses, debts, mortgages and would even be able to finish their education and cover some lost income. Moreover, life insurance lessens the financial burden of surviving family members in the aftermath of an unexpected death.

3.) Life insurance is a contract called policy

The contract called policy is the physical manifestation of someone’s financial interest in the life and livelihood of someone else, and it is a legally binding document. Life insurance companies collect the premiums paid out by policyholders and in the event of death, they pay out claims—called death benefit. The insurance company’s profit is the difference between the premiums taken and the claims paid out.

4.) Life insurance is not an investment, but a risk management tool

If you are thinking of getting life insurance purely as a monetary investment, you will find that it hardly delivers optimum results. While there are policies that include an investment feature such as tax privileges, there are hardly any individuals who would avail of life insurance solely with this in mind. Instead, think of life insurance as a risk management tool which would effectively save your dependents from financial ruin in the event of your untimely demise.

5.) There are four primary players in a life insurance policy.

Successfully getting yourself insured would create four significant and primary roles. These roles belong to the insurer, the owner, the insured and the beneficiary. Without a doubt, the insurer would be the insurance company which would be solely responsible for paying out claims in case of death. The owner of the policy is the individual who pays for annual premium payments while the insured is the person whose life the policy is based. The beneficiary or beneficiaries are those who would receive the death benefits should the insured die. Beneficiaries can be persons or entities that are due to receive the insurance claim when the insured dies.