What is Life Insurance?
Life insurance is a contract between an individual and an insurance company where the insurer agrees to pay a designated beneficiary a sum of money (known as the death benefit) upon the death of the insured person. In exchange, the policyholder pays premiums either periodically or in one lump sum. Life insurance can help cover funeral costs, outstanding debts, and living expenses for loved ones left behind.
There are various types of life insurance policies, including term life, whole life, and indexed universal life. Term life insurance provides coverage for a specified period, typically 10, 20, or 30 years, and pays the death benefit if the insured passes away during the term. Whole life insurance, on the other hand, offers lifelong coverage and includes a cash value component that can grow over time. Indexed universal life (IUL) insurance is a flexible policy that links its cash value to a stock market index, potentially offering higher returns.
Life insurance is essential for financial planning, particularly for individuals with dependents. It provides a safety net to ensure that beneficiaries have financial support after the policyholder’s death, making it a crucial component of any long-term financial strategy.