How Does Life Insurance Work?

Posted on July 24, 2013

You’re working hard for your money and you want your family to be able to enjoy the fruits of your labor in the coming years.  Preparing for your family’s future, however, means more than investing appropriately in order to achieve the right combinations of growth and stability for your goals and time horizon.  For many people, it also involves purchasing the right amount of life insurance during their working years.

Life insurance can help ease the financial impact on your loved ones in the event of your death.  With a life insurance policy, your family can use the proceeds to help replace lost income, eliminate debt, pay for college, keep a business afloat, or address other financial needs and goals while they adjust to a new life.

A life insurance policy provides a payment in the event of your death that can help protect your family’s lifestyle in the absences of your earning power.  Many people have financial goals they are trying to meet such as paying off a mortgage, putting a child through college, or supporting an elderly parent.  Life insurance can help support those goals.

When you purchase a life insurance policy, you’re buying a contract with the issuing insurance company.  The issuing insurance company guarantees that upon your death, it will pay a preset amount to your beneficiaries.  The guarantee is subject to the insurance company’s claims paying ability. The proceeds are typically free from income taxes.  The insurance company pays your beneficiaries directly, so they receive the funds without the delays and expenses associated with the probate process that governs assets passed down via wills.  Depending on the size of your estate, benefits from a life insurance policy may be subject to estate tax.

This is just a brief overview of how the process works.  Feel free to contact me for more details.


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