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What Is Life Insurance? Information For Beginners

by Admin on January 6, 2012

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ife can be a pretty unpredictable event. Things can happen that are totally out of our control. For that very reason, most people purchase life insurance. Life insurance is meant to protect the ones you love against an event that is life threatening.

What is Life Insurance?

Life insurance is designed to protect your family if you die. The money from the policy will be paid out to whomever you decide the beneficiary of the policy is. The beneficiary is the person you list to collect the money after you die.

How is Life Insurance Paid Out?

The death benefit (what the life insurance policy is worth. For example, it could be $1 million) of the policy can be paid out in many different ways. It can be paid out in one lump sum to the beneficiary, or it can be paid in yearly or monthly installments. Most owners of life insurance policies prefer the death benefit to be paid out over a certain number of years, to ensure that the beneficiary will not squander the money immediately, but instead have a steady cash flow for years.

What is the Right Amount of Life Insurance to Buy?

The amount of insurance that is the correct amount will depend heavily on the standard of living that the beneficiary has. If the beneficiary (for example, your family) has been used to living on $50,000 a year, and you want the insurance to last for 30 years, you would have to purchase $1.5 million in life insurance. Due to inflation and other factors, you may want to purchase even more insurance to make sure your family has enough to survive.

When is the Right Time to Buy Life Insurance?

The right time to buy depends on who you want your beneficiary to be. Remember, the beneficiary is the person who gets the cash after you pass away. The decision of when to buy the insurance is a personal one, however most people who are single with no dependents tend not to buy life insurance. The most common time to buy life insurance is when you have a family and people who depend on you for their sustenance.

Although life can be a pretty unpredictable ride, we can at least take a little bit of the worry and risk out of life by making sure our families and loved ones are taken care of through life insurance policies.

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