If you are planning for future uncertainties, life insurance is the right plan for your family. Life insurance is designed to provide your family a tax-free benefit amount to help them cover for lost income, eliminate debts, fund for college or keep your business running. Understanding how life insurance work and know which plan you should invest for are very important. This can be considered as one of your big financial investment.
How life insurance work?
A life insurance policy provides a one-time payment or gradual payment in the event of you death to your beneficiaries from your insurance company. Since your policy is issued, your life insurance coverage is guaranteed for death benefit and premium rates are locked. The insurance company will directly pay to your beneficiaries and it will be tax-free.
What type of life insurance?
Generally, life insurance falls into 2 main categories: term life insurance and permanent life insurance. First of all, a term life insurance will cover in a specific period of time that you chose. It will be varied from 5 years to 30 years. Once the policy is expired, you are no longer covered by life insurance anymore. If you just need a temporary protection in case of pre-mature death, then this could be a perfect choice. However, you can always extend or purchase another type of life insurance. On contrast with term life insurance, permanent life insurance will provide an entire life financial protection. The policy only expired once you pass away. People usually choose permanent life insurance in the case of wealth inheritance and estate planning purposes.
How much life insurance do you need?
All insurance carriers give you many options to choose the coverage. One simple method you can use to decide how much do you need is based on your annual salary. Therefore, your insurance coverage should be equal to 5 to 10 times your annual salary. Another method that you can use is considering your financial situation and how you would like your family to be covered in the future. For example, you just have a mortgage and you would want your family be able to keep house in case you pass away, then you can equal the amount of your property to your coverage.