Life insurance 101: Know the basics before you buy

Many of us don’t fully understand what life insurance is or how it works. The subject can seem complex and trying to decide what works best for you can be overwhelming. Life insurance is vital to the financial well-being of your family after you’re gone. Term life and whole life are the two most common types of policies. Learn the life insurance basics before you buy.

Why life insurance?
Life insurance allows you to provide for your loved ones financially after you’re gone. Your family will likely face the loss of your income, yet gain added expenses like funeral costs, outstanding debt and potential outstanding medical bills. A whole or term life policy may provide the financial means to cover those expenses.

Term life insurance
Term life insurance provides protection for a specific time frame or term such as 10, 15, 20, 25 or 30 years. Providers consider your age and the need you want to cover. If you die during that term, death benefits will be paid to your named beneficiaries. However, once the term is over, the policy expires. The death benefit though, remains the same throughout the life of the policy. Also, your premium amount never changes. Typically, you can obtain a larger amount of death benefit for a lower premium with term insurance rather than whole life.

Whole life insurance
Whole life insurance provides protection over your lifetime. There is no expiration date or term. In addition, a whole life policy accumulates a cash value over time. The policy can be used for loans or withdrawals. Further, the death benefit remains level and the premium cost never increases.

How do you decide?
Everyone’s needs are different. Commonly, a term life policy ensures funds are available for final expenses with a set term, like a mortgage. A benefit like this is a plus, especially if your significant other will not be able to maintain the household on his or her own. Alternatively, a whole life policy is typically valued for its death benefit. The payout could allow your family to maintain their lifestyle or pay for future expenses like college.

Now that you’ve gotten your life insurance primer, be sure to talk to your insurance representative about your policy needs.

The advice provided is for informational purposes only. 
Article provided by Local Government Federal Credit Union.