Here’s how life insurance actually work
While many of you may comprehend the basic benefits of investing in life insurance plans such as:
- Your family gets the money if you die unexpectedly
- Tax benefits
- Secures you financially, and many more.
These benefits are generally true for all kinds of life insurance plans. But, apart from knowing this, it is crucial that you understand why you need life insurance and more importantly, how does it work.
In this article, we will discuss the advantages of life insurances along with how does it function. However, before we head to that, let’s take a quick look at what are life insurance plans.
What is life insurance?
Life insurance plans are predominantly agreements between the insurer and an insurance provider. It says that, in exchange for all the monthly payments in the form of premium as received by the investor, the insurance company will pay a sum of money to your loved ones when the investor (you) dies.
Some of the things which life insurance covers are:
- Loss of income,
- Funeral expenses,
- Debts,
- Other financial needs
Once you purchase any of the life insurance plans, your monthly premiums commence too. However, although there is an expense of the premium, life insurances offer you peace of mind. It also assures you that your loved ones will be taken care of, after you.
What are the advantages of life insurance?
There are several advantages of life insurance. However, we list down some of the prominent benefits of life insurance are as mentioned below:
- It acts as an income replacement in times when you don’t have an income.
- It helps to pay off your home mortgage or any debt.
- Life insurance also helps to provide funds for your children’s college education.
- With life insurance plans, taking care of your ageing parents is financially possible.
How do life insurance plans work?
As you read a life insurance agreement, it can get a tad confusing, especially when it comes to the calculation bit. Fret not, here the only things which you need to bear in mind to really understand how life insurance plans work:
- Policy: It is primarily the contract between your insurance company and you.
- Premiums: These are the monthly or yearly payments which you need to make in order to own the insurance policy.
- Policyholder: This is you or the owner of the policy. However, you can always buy the policy for another person.
- Death benefit: This is the money assured by your policy, which is given out in case of your death.
- Beneficiaries: These are the people you choose to receive the death benefit. They could be your spouse, children, or even your parent. The only criteria for nominating a beneficiary is, they should have your name or your family name.
We hope this article has come handy to you and it helps you the next time you opt for any of the life insurance plans.
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