Life Insurance
Life insurance is a contract, often called a “policy”, between
you and an insurance company to provide money to a person you designate,
in the event that you die during the time the contract is in force. In
essence, during your lifetime you pay money, known as the insurance “premium”,
to the insurance company. It promises to pay money to the persons you name,
the “beneficiaries”, at your death. Some types of life insurance
also give the policy owner the right to “borrow” a portion
of the “cash value” within a policy, or to receive an “accelerated
death benefit” if you become terminally ill or require confinement
in a long term care facility.
You need life insurance if some person would experience a significant
financial loss in the event of your death. A common example of this is
the family breadwinner whose income totally or partially supports a family.
The death of that person would result in loss of income and financial
harm for the remaining family members. Other reasons are to put your
kids through school, pay the car note, mortgage, or other debts you have
left behind, and pay funeral expenses. Those who might be leaving estates
of $650,0000 or more (higher amounts apply in future years, often need
life insurance to pay for estate taxes.
Business partners are another important example. The death of one partner
might obligate the other partners to buy out the heirs: the life policy
can be the source of funds.
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