Life insurance is a particular kind of protection that pays out a benefit to your family in case you pass away. You purchase life coverage from an insurance agency, through the help of a knowledgeable and kind life insurance agent. The payments that you make as a major part of your agreement with the insurance company and it is called a “premium”. The “death benefit” is the agreed amount of money that the life insurance policy pays to your “beneficiaries.”
Here’s a basic example and quick overview of what this would entail:
Daniel Stevens ( 35 ) is recently married to Monica Stevens, ( 29 ) and since he is the sole income provider, he decides to buy a life insurance policy to protect his wife in case he passes away unexpectedly. He contacts Aida Rojas, who is a licensed life insurance agent for Some Awesome Insurance Company and he makes the following agreement:
His premiums (the amount he pays for the life insurance protection) is $35/month.
His death benefit is $250,000. Once he dies, this is the amount that would be paid out.
His beneficiary and wife, Mr.s Stevens, would receive the full amount of the policy in a lump sum or over time, depending on how the policy would be set up.
Here are a few things to keep in mind :
The insurance agency makes a great deal of its profit from “the float”. Once they have access to “premiums” that are paid, they are able to invest that money until the person passes away. For example since Daniel in our example above is 35, if he dies when he is 65, that is 30 years of interest that has been earned during that period.
Insurance agencies charge more depending on how high risk someone is. For instance, people with health issues, a criminal background, or who smoke may be considered a higher risk than other consumers.
Click here to see the different health category ratings for life insurance.