What is Life Insurance and How Does it Work?

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What is Life Insurance and How Does it Work?

Out of all the kinds of insurance, it can often be most difficult for folks to understand life insurance—people either don’t know about life insurance, or aren’t that thrilled to talk about it. Whereas home and auto insurance are connected to our everyday lives, life insurance recalls death, which most people tend to avoid thinking about.

Still, life insurance remains an integral type of protection for millions of Americans. Knowing exactly what it is and how it can help is important for everyone to know.

Life Insurance Basics

People secure life insurance because it will take care of important people in your life in the unfortunate circumstances of your death. Once you have a life insurance policy, you will make monthly payments and the provider will promise to provide certain payouts to surviving family or other dependents in the event of your death.

Many people think life insurance is a way to replace lost income from the deceased, but it also provides an essential role in covering any funeral expenses and can also help with outstanding debts. In short, life insurance plays a significant role in the immediate time period after a death, as well as in the long term.

What You Need to Know

There are commonly two distinct types of life insurance—Term Life Insurance and Permanent Life Insurance.

Term Life Insurance

Generally less expensive than Permanent Life Insurance, Term Life Insurance provides coverage and benefits for a specific amount of time, or a certain term. Beneficiaries will typically receive benefits that are directly related to the period following the death of the policyholder.

Permanent Life Insurance

For those looking for long-term care for beneficiaries, Permanent Life Insurance can be the answer. With Permanent Life Insurance, you are covered indefinitely as a policyholder and can be assured that beneficiaries are taken care of for years after the policyholder has passed away. Permanent Life Insurance also makes investments to your policy that is called “cash value” that can be accessed for long term financial assistance.

Understanding life insurance and its variations are essential to making the right plans for yourself and your family.

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