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Life Insurance 101: The Basic Functions of Life Insurance

While most of us understand that life insurance provides funds to beneficiaries after the policyholder dies, the additional facets and benefits of life insurance are lost on many consumers.

To help you jumpstart your life insurance shopping experience, we at InsureMe will help you identify what life insurance is, what it can do for you, and the additional benefits it can provide in Life Insurance 101.

Basic Functions

Life insurance provides monetary funds to the people you name as beneficiaries in your life insurance policy. In exchange for paying the premiums, your insurance company will pay out a death benefit to your beneficiaries after you die.

The majority of adults buy life insurance to cover immediate expenses after they die, like funeral, burial or cremation costs, as well as to cover any estate tax they may owe.

But life insurance can be used for more than just taking care of your final arrangements. Life insurance is also used to provide money for long-term expenses for loved ones.

Long-term expenses can include:

*House payments
*Car payments
*Credit card debt
*Food and clothing
*College funds
*Spousal retirement funds

It's important to remember that the main purpose of life insurance is to alleviate financial stress after a loved one dies, which may mean compensating for a lost income. Therefore, taking long-term expenses into consideration will help to ensure that your beneficiaries are adequately protected if you were to die unexpectedly.

Don't have any dependents to support? While you may not need to supplement a lost income, unless you have the funds to cover all debts and last expenses, purchasing life insurance is a good idea. Doing so means not burdening friends and family with your expenses. In addition, the proceeds from your life insurance policy can be donated to charity in your name, allowing you to leave something behind after you're gone.

Additional Benefits

Depending on what kind of life insurance you buy, your policy may carry additional benefits that can increase your death benefit over time. This is especially true for permanent life insurance policies.

These policies provide you with lifelong protection, which means a death benefit will be paid out no matter when you die, unlike term policies, which may be contingent on when or if you die during the policy's term.

The most common trait of permanent policies is that they typically build cash value over time. As a policyholder, you can use this cash to pay your premiums, accrue for a greater death benefit or borrow against your policy. While stipulations may apply to how you use any earned cash value, many policyholders enjoy the versatility that permanent policies have to offer.

Nontheless, one size does not fit all when it comes to life insurance. Be sure to take the time to learn about the features of each respective life insurance policy before you buy to make sure you're purchasing the right policy for you.

Buying a Policy

Once you've become familiar with what life insurance has to offer, you'll probably be ready to start shopping for a policy. Many consumers are learning that the Internet has made this task immeasurably easier than calling multiple agents. You can get both information and free life insurance quotes online, helping to speed the buying process along that much faster.

While you'll undoubtedly shop around for the best price, it's also important to find a licensed professional who will help you assess your exact needs and provide you with good customer service, as well as save you money. Your insurer's credentials, customer service rating and financial standing can be viewed free of charge through your state division of insurance and through consumer advocate groups like A.M. Best.

Taking advantage of free resources like online life insurance quotes and other consumer resources will help you learn about life insurance and get the best possible deal. In the end, you'll rest easier knowing you've secured cheap life insurance to protect your family for years to come.

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