Life Insurance Facts

With so many information and details available everywhere promoting insurance and its different life products, it sometimes becomes too confusing to separate fact from fiction. If you are buying an insurance product, then it is important to break down the details and check out only the significant factors.

However, before you decide to purchase an insurance product, it is important that you first define the things that you must know. Just like any other commodity, insurance can be broken down into simpler categories to make it easier to understand.

In grade school, we were taught the beauty of using the W’s and H to get the basic information that we needed in order to get to the heart of things. The same formula can be applied to life insurance.

Who needs a life insurance plan?

The primary question to ask ourselves is: who needs one? Life insurance is a personal investment that is designed to protect not only the insured but also the immediate family that will be left in the event that something happens to the insured. If you are someone who has your own family, this signifies that you are a primary candidate for choosing this product. Moreover, if you are alone and do not have relatives you are worried of leaving behind, then this indicates that having an insurance may not have to be your top priority.

What are the products available to me?

So you have identified yourself as someone who needs to have life insurance coverage. The next thing to check out is what products are available for you in the market.

Different people approach getting a life insurance with varying notions. Some people are primarily into it for the financial security that it affords their loved ones, while others think that it can be a potentially good investment.

If you are one of those who believe the latter, then you must stop here. Even with the cash feature that is provided by insurance coverage, your mindset towards buying an insurance product should not overly emphasize the cash feature as you may find yourself on the losing end.

An insurance coverage will provide your family security against financial risk in the future. But in the event that you outlive your policy, you basically only get a portion of your premiums back. So thinking of getting insurance as a financial investment is technically incorrect.

An insurance plan can be available in two ways: term or whole life. Term insurance means that you are insured for a certain term or period of your life, but when you outlive this time frame, the coverage vanishes. Basically, you pay for the probability that you will die within a certain time frame – if that happens, your family can collect on the cash value of your coverage; however, if you do not, then there is no monetary reward to collect.

Whole life insurance, on the other hand, ensures that you are protected for the rest of your life, but you are going to have to pay the premiums for your whole lifetime, too.

Fortunately, plans have evolved to include a feature that lets you as the insured earn some cash value – different from the policy value that can only be redeemed by your death. Cash value is composed of a fraction of your premiums that have been invested by the insurance company into financial undertakings that can be given back to you when you withdraw it for some other purpose or, in case of whole life insurance, as a lump sum when you opt to cash in on your policy.

Knowing all these simple life insurance facts can be an advantage when you decide to purchase an insurance plan. Understanding where you are coming from will provide you with the direction on whether to take on a plan or not. Becoming insured is not just about you; it is primarily about protecting your loved ones and giving them future financial security.