Are you considering buying life insurance for the first time? There are so many options that it’s hard to know what to get. It can be extremely confusing.
There are so many people in the U.S. who say they need life insurance but do not have it. This can partially be explained by the tendency of people to overestimate its cost.
Perceptions about affordability and value can deter people from buying the life insurance they need.
Here’s a breakdown of what you need to know about life insurance so you can make an educated decision. While there are many things to take into account when purchasing life insurance, check out our list of some of the major things to consider.
What is Life Insurance?
Life insurance is a personal finance cornerstone that’s important in protecting your loved ones. While no one likes to think about dying, it happens to about 150,000 people around the world every day.
Life insurance provides income for your loved ones in the unfortunate event that you pass away.
Typically, life insurance is an agreement that if you die, or are diagnosed with a terminal illness, a sum of money will be paid out to (typically) your spouse or children. You can also have this death benefit paid to other members in your family (i.e. parents, siblings, etc).
How Does Life Insurance Work?
Life insurance is a contract between you and an insurance company. Essentially, in exchange for your premium payments, the insurance company will pay a lump sum known as a death benefit to your beneficiaries after your death.
Your beneficiaries can use the money for whatever purpose they choose. Often this includes paying everyday bills, paying a mortgage or putting a child through college.
Having the safety net of life insurance can ensure that your family can stay in their home and pay for the things that you planned for.
There are two primary types of life insurance: term and permanent life. Permanent life insurance such as whole life insurance or universal life insurance can provide lifetime coverage, while term life insurance provides protection for a certain period.
15 Best Tips If You’re Buying Life Insurance For The First Time
1. Decide whether you need it.
If you have children or other loved ones who depend on the money you earn, most likely you need life insurance. Its primary purpose is to protect your income. Life insurance helps your dependents keep on living as they would, if you were still earning a paycheck.