Understanding life insurance can sometimes get tricky, to put it simply life insurance is a contract between the insured and the insurer. The insurer is mostly a company that agrees to pay a set amount of money to the beneficiaries of the insured if the person who is insured dies.
Life insurance has many benefits and becomes very useful for the beneficiaries and the insured! Life insurance aspects and benefits of insurance are discussed down below.
What is Life Insurance?
Two main components are highlighted in the policy life insurance, one is called the death benefit and the other is known as premium. However, there is also a third life insurance term which is known as cash value, but this term is only available for ‘whole life insurance.
Death Benefits of Insurance
The amount of money that has been guaranteed by an insurance company to the beneficiaries which have been mentioned in the policy, if the insured dies are what is known as the death benefit.
The amount is chosen by the insured while keeping in mind the needs of the beneficiaries. After this, the insurance company would judge if an insurable interest is present.
Then, the insurance company would consult with a board of underwriters and it would be checked if the risk which has been evaluated by them does end up meeting the requirements of the company.
The policyholder would be required to make a cash payment to the insurer. These payments are known as premiums, in exchange for the premiums the insurer would guarantee the beneficiaries a death benefit. However, these payments vary from person to person as many factors affect them.
The amount needed to be paid in the premiums would be calculated keeping in mind the life expectancy of the insured. Factors such as health, age, gender, medical history, workplace risk, and any high-risk hobbies are considered while calculating life expectancy.
Who should get Life Insurance?
Life insurance is a safe investment for almost everyone, as there are many benefits of life insurance. One of the main life insurance benefits is that the surviving dependents of the insured or any other beneficiaries who have been listed in the policy are given a set amount of money.
Here are a few people which could get the most benefit from life insurance.
Insurance for Parents with Special Needs Children
Parents which have special needs children can have life insurance on themselves so that if they pass away, their children would be taken care of.
The death benefit could be put into a special needs trust fund for their child. Then the adult child would be taken care of financially for the rest of his life.
Insurance for Parents with children that are Minors
Parents which still have minors can be benefited from life insurance. As if they pass away their children would receive the financial resources up until they are old enough to manage their finances themselves.
Living Benefit of Life Insurance
There is a very attractive living benefit that is associated with life insurance which attracts many people to buy life insurance.
A person who is a life insurance holder could potentially build cash value throughout the life insurance policy throughout their lifetime. This practice is called the living benefit of life insurance.
What is the Cash Value and how can it give Living Benefits of Life Insurance
Cash value is a saving account that could be used by the person in their lifetime, as the cash is stored on a tax-deferred basis. However, there are some restrictions enforced by some of the companies, on as to how much money could be withdrawn at a time.
Furthermore, another living benefit of the life insurance the policyholder would have is that they could get loans based on their cash value, they would have to pay interest on that, however.
Living Benefits Riders
To put it simply, living benefits rider is an option that could be included in your insurance policy, which allows you to borrow money from your death benefit if you have been diagnosed with a terminal illness.
This practice is common in most insurance companies and they automatically add the living benefit riders clause in the insurance policy.
With living benefits rider you could potentially gain access to all or some of your death benefits, and you would be free to choose to spend this money on whatever you want to, however mostly the money is used to pay for medical bills or other ends of life expenses.
These are there the mutual living benefits of life insurance.