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Life Insurance Basics – How Life Insurance Works

About 41 million people in the United States say they need life insurance, but they don’t have it. Why? Well, the main reason is people tend to overestimate how much life insurance will cost. For example, participants estimated that a $250,000 term life insurance policy would cost about $500 a year in one study. However, in reality, it only costs about $160. People also avoid investing in life insurance because it’s hard to understand or don’t know much about it. So we’re going to talk about some life insurance basics and how life insurance works.  What is Life Insurance? Life insurance, in short, is a contract between you and an insurance company. An insurance company agrees to pay a lump sum known as a death benefit to your beneficiaries after your death in exchange for paying premiums. Your beneficiaries may use the sum for any purpose they choose, but common uses include paying a mortgage or putting a child through college. There are two primary types of life insurance. They are a term and permanent life. We’ll discuss those next.  Term Life Insurance Term life insurance is the most affordable and the most popular choice among purchasers. This type of... Read more