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What is life insurance?
- Financial protection for loved ones: Life insurance is a contract between you and an insurance company. You pay premiums, and in exchange, the company agrees to pay a sum of money (the death benefit) to your designated beneficiaries upon your death.
- Purpose: It’s designed to protect your family or dependents financially in the event of your unexpected passing. The money can be used to:
- Replace lost income
- Pay off debts like mortgages and loans
- Cover future expenses like college education for children
- Fund final expenses (funeral costs)
Types of life insurance
- Term Life Insurance
- Coverage for a specific period (e.g., 10, 20, or 30 years).
- More affordable premiums, especially for younger, healthier individuals.
- Primarily aimed at providing income replacement and covering debts if you die during the term.
- Whole Life Insurance
- Lifelong coverage as long as premiums are paid.
- Builds cash value over time, which can be borrowed against or accessed upon surrender of the policy.
- Higher premiums than term life.
- Universal Life Insurance
- Offers flexibility in premiums, death benefits, and potential for cash value growth.
How to choose the right policy
Consider these factors:
- Your dependents: Do you have people relying on your income?
- Your financial obligations: What outstanding debts do you have?
- Future needs: What major expenses do you anticipate for your family?
- Your budget: How much can you afford to pay in premiums?
- Your health: Your health status can affect your eligibility and premium rates.
Important Notes:
- It’s often wise to buy life insurance when you’re younger and healthier, as premiums tend to be lower.
- Consult with a financial advisor or insurance agent to get personalized advice about the type and amount of life insurance that best suits your needs.