Are you thinking about taking out a life insurance policy? You’re in great company.
Research shows that 39% of consumers in 2023 said they planned to buy life insurance policies during the next 12 months.
When taking out a policy, you may wonder “how does life insurance work?” Let’s explore how life insurance works in simple terms.
How Does Life Insurance Work?
A life insurance policy will pay out regular payments or a large payment when you die. This money will give your dependents the financial support they need once you’re gone.
How much your policy pays out will depend on your chosen coverage level. In addition, you get to choose how your money will be paid out and who will receive it.
For instance, if you choose a joint insurance policy with your spouse, your spouse will receive the money. Meanwhile, if you choose a single insurance policy, your estate will receive the money. In this situation, you would need to determine who will receive the money when you pass away.
A joint policy is typically more cost-effective than two single policies. The drawback of a joint policy is it will pay out on only one person’s death. Meanwhile, if you and your spouse buy your own policies, payouts will be made following both of your deaths.
Types of Life Insurance
There are two types of life insurance: term life and whole life. Let’s explore these two options.
Term Life Policy
A term life insurance policy runs for a certain amount of time, like five years or 20 years. This type of policy will pay out only if you pass away while you still have the policy.
You may choose a level, decreasing, or increasing term life policy.
The level option will give your beneficiary a certain large sum when you pass away. Meanwhile, with the increasing option, the coverage level rises over time to take inflation into account.
With the decreasing policy, the coverage level decreases each year. This may be appropriate for families who are repaying mortgages and will have lower outstanding loan amounts over time.
Whole Life Policy
A whole life policy isn’t restricted to a term. Whenever you die, the policy will pay out if you’re current with the premium payments.
This type of policy’s payout is frequently used to cover funeral expenses. However, whole life policies are usually costlier than term life policies.
How We Can Help With Life Insurance
Still wondering “how does life insurance work?” A life insurance policy payout, which can be a single payment or regular payments, can give your family the financial support they need if you pass away. A term life policy is generally more affordable than a whole life one.
At RBP Insurance, we take pride in offering high-quality life insurance. Get in touch with us to learn more about our services, and start protecting your family’s finances by taking out a policy today!