The Lowdown on Life Insurance

It’s a fact of life, like living, or dying — life insurance is a must if you have people, pets, or property you want to take care of when you’re gone. Here’s a quick and dirty primer on all things life insurance.

Insurance is an umbrella term for a policy to provide payment in the case of loss, such as compensation for repairs and injury in a motor vehicle accident, or, in the case of life insurance, provide payment in case of the death of the insured person.

Insurance can provide coverage for your home (the property and contents if owned, or just contents if you’re renting), vehicle, business, critical illness or disability, or life.

Life insurance – there are two types, Term, or Permanent (Universal Life or UL) – both work in a similar manner, providing payment upon the death of the insured, the difference is the length of time of coverage (hence the ‘term’). Insurance policies provide coverage as long as the policy is paid for, so if you miss a payment, your policy could lapse, and leave you without coverage.

The insured’ is the person for whom the insurance policy is purchased for, and it is their passing that generates payment.

Beneficiary’ is the person who receives the insurance payment from that policy. This can be a spouse or dependent or person of your choosing.

Term Life Insurance provides coverage in the case of death within a set period of time (usually 10-20 years), provided that you make ongoing payments into the policy for the duration of that time. Once that time period is up, you have the option to renew the insurance policy to provide continued coverage. If you do not renew it, you will not have further coverage. Term insurance is significantly less expensive than Permanent or Universal Insurance.

Permanent Insurance (also known as Universal) provides coverage until the end of your life, provided that payments to the policy are made. This is significantly more expensive than Term Insurance, and often has a cash value portion attached that may be accessed while the insured is still alive (think of it like an emergency fund) or used to provide additional money for your beneficiaries.

The costs of insurance are banded, depending on your age and any pre-existing health information, and based on the statistical likelihood of death / serious illness. It is far less expense to purchase insurance while you are young and healthy, and carry it for a long time, rather than purchase as you grow older. You may require a medical exam to ensure you are in good health, before the policy comes into effect.The purpose of life insurance is to cover final expenses such as taxes and funeral costs, and help offset the cost of living for a spouse or dependents. The care of children or purchase of a family home, given the loss of the insured’s income, can be a tremendous burden for those left behind. The ‘final legacy’ aspect of insurance is a very important consideration, and should be done in consultation with a financial advisor who can guide you through considerations such ensuring education plans are paid in to, costs of caring for those dependent on you, or how to disburse your wealth in a fiscally sound (i.e. tax efficient) manner.

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