Understanding Life Insurance

It is always a good idea to take some time to review your life insurance policy periodically. Life insurance is one of the most basic insurances that has been proven time and time again to be a wise choice. No one hopes to have to use the insurance they purchase, however, if they do, it can make a world of difference.

Why Life Insurance?

You’ve probably heard all the rhetoric about life insurance, but never actually acted on it. It’s important to understand why life insurance is important. Life insurance is particularly important for parents with young children and those who support a spouse or a disabled family member. The primary purpose of life insurance is to provide a cash payout (called death benefit) to the policy’s beneficiaries. However, some policies do have the potential to accrue what’s called cash value, a resource which can be used for some purposes while the insured is still alive.

Term Vs. Permanent Life Insurance

There are two main types of life insurance policies. The first is term insurance and as the name hints, provides coverage for a specific time period. Whether that time period is one year or thirty years you will have coverage for the policy’s specified term (as long as you pay the premiums). If the insured passes away during the specified term, the beneficiaries get a payout. If the term expires before the death of the insured, there’s no payout. The second type of policy is permanent life insurance, which includes: whole life, universal life, and variable life coverages. These are not limited by a term, and will provide coverage for life, as long as premiums are paid.

Important Insurance Terms

Death Benefit: this is the amount your policy will pay out when you (the insured) dies. The exact amount depends on the specifics of your policy and the benefits you chose.

Beneficiary: this is the recipient of the death benefit (payout) upon the insured’s death. Anyone who has an insurable interest can be named: spouse, child, family member, business partner, or alternatively, the proceeds could be paid to a trust or charity.

Underwriting: this is the process used by the insurer to determine whether or not they will provide life insurance. Potential risks factors such as age and previous medical history are used. These are also used to assign a monthly premium.

Riders/Endorsements: you can add further benefits to your life insurance policy called “riders” or “endorsements.” Add-ons are often guaranteed insurability, waiver of premium, child rider, and accelerated death benefit.

Life insurance isn’t something most people want to think about. However, it’s an important component to provide for those who depend on you. If you would like to learn more about life insurance, either term or permanent, please contact us at HK Insurance. You can start by getting a free, no-obligation life insurance quote and we will be glad to answer any questions you may have along the way. In addition to life insurance, we offer the full spectrum of insurance including home and auto.