How does life insurance work?

Life insurance is a crucial financial tool designed to provide your loved ones with security and peace of mind after you’re gone. When you purchase a life insurance policy, you enter a contract with an insurance company. You agree to pay a premium, and in return, the insurer commits to paying a predetermined sum to your designated beneficiaries upon your death. These funds can support various needs such as college tuition, housing costs, funeral expenses, and debt repayment.

Types of life insurance

There are two primary types of life insurance:

Term Life Insurance: This type covers you for a specified “term” or period. If you pass away during this term, your beneficiaries receive the death benefit. If you survive the term, you can renew your policy, often at a higher rate, convert it to a different type of life insurance, or allow it to lapse if it’s no longer needed.

Permanent Life Insurance: This category includes whole life and universal life insurance, offering a death benefit that lasts your entire life. Whole life insurance includes a savings component that grows at a guaranteed rate, while universal life insurance’s savings component is influenced by market conditions.

Special policies for specific needs

Specific policies, such as final expense insurance, offer smaller benefits intended to cover funeral and burial expenses, easing financial burdens associated with final costs.

Determining your life insurance needs

The amount of life insurance you need varies based on your personal and financial circumstances. Consider what your family would need to remain financially stable without your income. This might include funds to clear a mortgage, cover living expenses, or invest in your children’s future education.

Policy duration

Term Life Insurance: Lasts for a set period defined at the purchase of the policy, such as 10, 20, or 30 years.

Permanent Life Insurance: Provides lifelong coverage as long as premiums are paid, with the potential to accumulate cash value that can be borrowed against or used to cover premiums later in life.

What life insurance cover

Life insurance payouts are designed to be flexible, allowing your beneficiaries to use the funds as they see fit, whether that’s paying off debts, covering living expenses, or even funding retirement.

Final expenses

Life insurance can certainly cover funeral costs. Specific final expense policies are available to handle these and other related costs directly.

Choosing the right amount

Selecting the right amount of life insurance involves evaluating your current financial obligations, future needs, and the lifestyle you wish to provide for your dependents. Combining term and whole life policies can offer both immediate coverage and long-term security.

Exploring life insurance options

Life insurance is a complex but vital part of financial planning. Consulting with a trusted agent is advisable to fully understand your options and determine the best coverage for your needs. Whether through a medical exam or a simple interview, getting insured is a step towards securing your family’s future.

Ready to take the next step? Contact us today to explore your life insurance options with an SBLI agent who can help tailor a policy that’s right for you and your family. Reach out now and ensure your loved ones are protected.

This information is provided as general information and is not intended to be specific financial guidance. Before you make any decisions regarding your personal financial situation, you should consult a financial or tax professional to discuss your individual circumstances and objectives. Policy form B-56 series.

Loans will reduce your net cash value and net death benefit, and may be subject to interest charges.  Unpaid loans are subject to ordinary income tax and, if taken prior to age 59½, a 10% federal tax penalty.