Life insurance is a contract formed between you (the insured) and an insurance company (the insurer) to prevent financial hardship in the event that the insured dies. This contract indicates that as long as you meet specific conditions, your insurance company will continue to pay specific amounts (called "death benefits") to your beneficiaries after you die.
Function
Without life insurance, many families would not have any other way to maintain their current lifestyle, which can result in the loss of homes or a lack of funding options for a child's education. Life insurance is used to offer an "instant estate" after the insured person dies. Survivors use insurance policy benefits after the death of the insured. Policy benefits can be used by survivors to pay for the insured person's final expenses like funeral costs, to pay off financial obligations including credit card debt and mortgage loans and to compensate for the insured person's lack of income.
Identification
Anyone who has others depending on their income or has no other means of providing expenses in the event of their death should sign up for life insurance. People who have enough assets available to cover all family members' expenses or whose children are adults and thus have no dependents usually do not need to have life insurance.
Types
There are term and permanent types of life insurance. Term insurance offers protection for a certain amount of time but does not accumulate cash value. Permanent insurance (also called whole life insurance), on the other hand, can last throughout the insured person's lifetime and accumulates money that is accessible even while the insured person remains alive.
Time Frame
The appropriate time to purchase life insurance is when your financial obligations grow and you need more insurance coverage. Examples include when you purchase a home (to provide protection in case you or your spouse passes away); after the birth of a child or when you get married. The younger you are when you purchase life insurance, the less the insurance will cost.
Considerations
The amount of life insurance you need can fluctuate a great deal depending on your individual or family financial situation. You should first take into account the amount of assets you have available, as well as the amount of debt you have accumulated. Other factors to consider include the amount of income that would need to be replaced in the event of your death and the amount of Social Security benefits that will become available after you pass away.
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