Let’s answer the most common questions about life insurance: What does life insurance do? Do you need it? And why is it so important?
Essentially, life insurance offers a tax-free lump sum of money to your family or loved ones when you die. This helps them remain financially stable after your death, giving you the knowledge that they are going to be okay.
So How Does Life Insurance Work?
You really just need to know what life insurance usually involves, how to make an application, and the various policy types and prices.
Common Aspects of Life Insurance
There are four components of every life insurance policy:
- The policyholder: Whoever owns the policy. The death benefit is paid when the policyholder dies, but you can also buy a policy for another person.
- The beneficiary: Whoever gets the money when the policyholder passes away. This can be more than one person or institution.
- The premium: The monthly or yearly payment for the policy.
- The death benefit: The money that goes to the beneficiary when the policyholder dies.
The death benefit will be paid unless certain circumstances occur, such as the policyholder outliving a term life policy, fraud on the application, or if the policy is canceled.
Different Types of Life Insurance in Colorado
There are two main types of life insurance in Colorado: term and payment. With term life insurance, you’re covered for a pre-decided length of time. After this time, the policy is no longer active. Term life insurance is usually the least expensive. Permanent life insurance doesn’t expire if you keep paying the premium. You can also borrow against the cash value component of your permanent policy. There are universal, whole, variable, and variable universal life insurance policies.
People usually choose between term or whole permanent life insurance. While term life is inexpensive and simple, whole life is good for people with complex financial situations. You can find the best choice for you with the help of a licensed expert.
The Price of Life Insurance in Colorado
Life insurance costs depend on various factors like your age, location, health, and hobbies. Companies weight these factors in different ways, so you should compare prices from various companies. The industry group LIMRA estimates that a $250,000 term life insurance policy will cost a 30-year-old non-smoker approximately $160 annually.
The Benefits of Life Insurance
- The death benefit lump sum your loved ones will receive is tax-free.
- It’s affordable (life insurance often costs less per month than an internet connection!).
- Permanent life insurance can act as an investment vehicle.
Why Is Life Insurance Important?
Life insurance gives you peace of mind that your loved ones are financially protected after you pass. It can help them pay for college and retirement, manage debt, and cover costly funeral expenses, all of which can be expensive and stressful to manage.
Do You Need Life Insurance?
Well, some people don’t need life insurance. You don’t need it if you have no beneficiaries, you don’t and won’t have any debt, or you can cover costs with your own money. But if this isn’t you, it’s well worth looking into life insurance. Otherwise, your loved ones may be in a tricky position when you die. Anyone who is the main breadwinner in a household or has financial dependents should really think about getting life insurance coverage. If you’re a spouse, a parent, or you have your parents co-signed on your student loan debt, it’s a good option for you.