What is life insurance? — Learn the basics of a life insurance policy
If you have a family or loved ones who depend on you financially, life insurance can help you protect them. If something happens to you, the death benefits your policy provides can help them meet their future financial needs.
A life insurance policy is an exchange of promises
When you purchase life insurance, you and the insurance company enter into a contract in which you each make important promises. You promise to pay the policy premium. In return, if you die while policy is in force, the insurance company promises to pay a death benefit amount to the people you’ve named as beneficiaries.
When the policy is issued, the death benefit coverage it promises to pay helps protect the financial security of the loved ones you’ve chosen as beneficiaries. If something happens to you, the death benefit provides funds they can use to pay such things as the mortgage, buy food and clothing, and get an education. Life insurance death benefits will help support them economically if you can’t be there to do it yourself.
Who needs life insurance?
There are a variety of reasons why a person would want to purchase life insurance - both for personal and business reasons. Here are a few of the most common:
- Parents with minor children or with adult children that have special needs
- People who own property, or just live together, if one person could not afford to live alone.
- People planning for the future who want to lock in low rates while young and healthy.
- Wealthy families for estate tax planning purposes.
- Families who can’t afford final expenses - a small life insurance policy, like a "burial policy" can help.
How do I get a life insurance policy?
These are the steps that usually take place in getting life insurance coverage:
- You submit an application for insurance with information about you.
- The company reviews the information and evaluates your health, family history and medical condition.
- If you meet their guidelines, you can get coverage at a specific premium rate.
- You accept by agreeing to their offer, completing the appropriate paperwork and medical exams, if necessary, and making a premium payment.
- You have a period of time (often ten days after delivery of the policy but this varies by state) to change your mind, cancel the transaction and get your money back.
Who are the parties in a life insurance policy?
- The Insured — the person whose life is insured and whose death triggers the death benefit payment.
- The Policy Owner — the person who applies for the policy and who owns it after it is issued. Sometimes it's the same as the Insured, but it can be another person, like a spouse or a business partner.
- The Beneficiaries — the people who the policy owner names as those entitled to receive death benefits under the policy after the insured’s death
- The Insurance Company — issues the policy and is responsible for paying the death benefit to the beneficiaries if the insured dies while the policy is in force
- The Agent — the person who represents the insurance company and who handles all the required paper work so the coverage can be put in place.
Is there more?
Some policies may offer riders on their policies for expanded benefits, of course for additional fees. Riders may include waiver of premium riders, accidental death benefit riders, long-term care riders, and disability income riders. Make sure to consider all the options available and compare with your needs.
This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice. All investments are subject to risk. We recommend that you consult an independent legal or financial professional for specific advice about your individual situation.
Securities offered through Voya Financial Advisors, Inc. member SIPC.