What is the purpose of life insurance?
Life insurance is a contract between an individual with an insurable interest and a life insurance company to transfer the financial risk of a premature death to the insurer in exchange for a specified amount of premium.
Life Insurance Death Benefit
Although the death benefit amount is determined by the insured, the insurer must determine whether there is an insurable interest and whether the insured can qualify for the coverage based on its underwriting requirements.
Death Benefit – The death benefit is the amount of money the insured’s beneficiaries will receive from the insurer upon the death of the insured.
Three Main Components Of Life Insurance
The three main components of the life insurance contract are a death benefit, a premium payment and, in the case of permanent life insurance, a cash value account. For example, who will be responsible for your funeral costs and final medical bills? The goal of life insurance is to provide a measure of financial security for your family after you die.
Protection From Financial Loss
Life insurance is a protection against financial loss that would result from the premature death of an insured. The death benefit is paid by a life insurer in consideration for premium payments made by the insured. Would your family have to relocate? The named beneficiary receives the proceeds and is thereby safeguarded from the financial impact of the death of the insured. Will there be adequate funds for future or ongoing expenses such as daycare, mortgage payments and college?
Evaluate Your Life Insurance Needs
It is very important that you re-evaluate your life insurance policies annually or when you experience a major life event like marriage, divorce, the birth or adoption of a child, or purchase of a major item such as a house or business. So, before purchasing a life insurance policy, consider your financial situation and the standard of living you want to maintain for your dependents or survivors.