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What Is Life Insurance?
70% of American families would be bankrupt in months if they lost the primary breadwinner. Simply put, life insurance is a way to provide financial protection for your loved ones in their most vulnerable moments. A life insurance policy ensures that if you die while your policy is active, your loved ones will receive a lump-sum payout, known as a death benefit. The death benefit can be used to cover things like mortgage or rent payments, education costs, funeral arrangements, and more.
Basic Components
Insured
The person whose life is covered under the policy. Typically, this is the person who owns the policy and pays the premiums, however, it is possible for the policy owner and payor to be someone other than the insured.
Beneficiary
The person(s), entity, or institution(s) that receive the death benefit if the insured person dies. You can name one person (or more) as beneficiaries when you purchase a policy.
Premium
The money paid to keep a policy active. Payment ensures that the insurance company will provide your beneficiaries with the stated death benefit in the event of your passing. If you stop paying premiums, the policy lapses.
Death Benefit
The money paid out if the insured person passes away. Death benefits are generally not subject to an income tax and beneficiaries usually receive the benefit in one lump-sum payment.
What Is Term vs Whole Life/Permanent Insurance?
The Answer Lies in the Names
Term life insurance uses premiums to cover you for the determined “term” of the policy, expiring if not claimed within that timeframe. It is the most straight forward and affordable option, covering you for a set “term” (typically 10 to 30 years). If you pass away during the term period, your beneficiaries receive a cash payment.
Whole Life/Permanent insurance can last your entire life if premiums remain current. Whole life policies also have the potential to accrue cash value, depending on the policy. However, premiums typically cost between five and 15 times more than a term policy for the same benefit amount.
