How Does Life Insurance Work?

Life insurance rates

We all hope that when it’s finally our time to go, we can leave our families with large sums of money and no bills that need payment. Unfortunately, this is almost never the case. Nobody knows the future. We could walk along the sidewalk tomorrow and an a piano might fall on us. Where does that leave our mortgage, or car payments?

In addition to having a will ready, it’s also necessary to have the best life insurance policy suited for your circumstances in order to have the peace of mind that comes from protection against the unknown.

When people buy a life insurance policy, they pay a monthly, quarterly, or annual premium for the policy’s term, which can be as short as a year or as long as a lifetime. If the policy holder passes away during the policy’s term, the beneficiaries receive a fixed amount of money that helps cover such things as funeral expenses, and any outstanding debts.

There are two different life insurance types available. A person can buy a whole life insurance policy, or a term life insurance policy. The difference between the two is the length of the term to which they apply for. A term life insurance policy lasts as long as it needs to, with the owner determines its length at the time of the purchase. This kind is generally cheaper than a whole life insurance policy, which as the name implies lasts for the rest of the policy holder’s life.

The cost of life insurance isn’t only determined by which type is being purchased, but also by the person’s risk factor. Life insurance providers ask applicants for a full medical history, and about their lifestyle, hobbies, credit history, driving records, and travel habits. The insurance companies use this information to figure out how much they should charge for a policy, or if they should even offer one at all.

Naturally, the higher a person’s risk factor, the higher the premium. The most important of these factors are age, pre-existing medical conditions, and sex. Older people will have to pay more for life insurance, as well as anyone who has a family history of cancer or heart disease. Also, smokers should expect to pay twice as much for a life insurance policy as non-smokers.

The best way to understand the idea of life insurance is to think of it as being similar to gambling. The policy holder bets the provider that he or she is going to die within the policy’s term. The worse the bet is for the provider, the higher the premium.

If you have any questions about what life insurance is, or need anything clarified, feel free to ask in the comments. More on this topic.

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