When you become an adult, you begin to take on a host of new responsibilities. Gone are the days when you were a kid and got to play outside with your friends all day long. The carefree days of high school and college are also behind you now, with dorm parties being replaced by late nights at work instead. When you graduated it marked a passage, as you were suddenly thrust into the world and needing a full-time job and a new place to live.
An even bigger change comes when you start to settle down in a more permanent relationship. With stability and the feeling of love comes a feeling of more permanence and constant compromise. Then one day, the most incredible change occurs and you find that you’re starting a family. When you have both a partner and children to consider, couples often start thinking about picking the best neighborhood for local schools and perhaps moving to a safer place in the suburbs.
The Benefits of Life Insurance
When your child is born, couples often take the necessary steps to assure that everyone will be taken care of financially in the event one of the partners passes on. Life insurance makes a lot of sense, because most families could not afford to make payments on their high-priced home or make ends meet with only one salary. With proper coverage, you can be assured that in a worst-case scenario you wouldn’t be thrown out of your home.
Another benefit of having life insurance is that couples have the option down the road of selling the policy and receiving cash while they’re alive. It’s possible to go online and find out the cash value of your policy in seconds. As with any financial decision, you’ll want to do your research so you are sure this is the right decision for you.
Basic Terms to Understand
Most people have no background in life insurance when they start shopping for their first policy. The ins and outs of choosing the right coverage can be simple in some cases, but complex in others. When you are just getting started it’s helpful to understand key terms. There are two major types of coverage, term or whole life. Term policies are a popular choice, and are less expensive and have a preset date they expire. Whole life coverage has both a premium and a cash value.
The death benefit is the amount that would be paid out if the covered individual passes. This money would go to the person named as the beneficiary. Every month the policy holder will pay a premium covering the cost of the policy. With whole, or permanent policies, there is also a cash value that is basically a savings account with tax deferral benefits.
Term vs. Whole Life
One could explore the nuances of life insurance for quite some time and still find new wrinkles in the types of coverage offered. Basically, though, the two major types of policies fall into one of two categories – term or whole. If you purchase term coverage, you are signing up for a specific death benefit and a set number of years. If the covered party dies before the end of the policy, the beneficiary then gets the death benefit payout.
Whole life policies are far more complex, and usually more costly. Whole coverage does not expire, and offers a cash value in addition to a predetermined death benefit. When you make the premium payment, a certain part of your payment goes to cover the death benefit and another part goes to build up the cash value. The cash portion of the policy accrues interest each month at an agreed upon rate.