Life Insurance: How Does It Work

Life insurance is simply that’an insurance policy on your life. You purchase a life insurance policy from a qualified provider, paying them a premium. The premium is either paid monthly or in a lump sum (usually annually or every six months). The insurance company then agrees to pay an agreed upon amount of money after the insured person dies. The amount of money paid from a life insurance policy goes to the policy’s designated beneficiaries in a lump sum payment. If no beneficiaries are designated, then the payment is made to the estate of the deceased.

There are two basic kinds of life insurance: Term insurance, also called protection policies. These policies are temporary, providing coverage for a specific number of years for a set premium.

Term life does not build up cash value. You are just buying protection in the event of your death, and nothing else.

Whole life: These policies are also called permanent life insurance. The objective of whole life is to grow capital through the payment of regular or lump-sum premiums, while providing coverage in the event of death. This kind of coverage is also known as permanent life insurance. The premiums do not change, and there is a guaranteed cash value for the policy, which can be accessed whether or nor you die, for emergencies, vacations, retirement, or other expenses.

The type of coverage you buy generally depends on the goals you want life insurance to accomplish. Many people find that term coverage suits their needs, if they just want to make sure that their bills are paid and that their heirs receive some cash after their deaths. Other people want a reliable source of cash accumulating year after year as they pay their premiums. You can speak with qualified life insurance agent to determine which kind of policy is best for you.

Life insurance policies typically pay on death, although they may also cover dismemberment or certain serious illness, such as heart attack or cancer, and provide additional benefits in the event of accidental death. It all depends on the particular policy you buy. Proof of death, injury, or illness is always required before the insurance company makes payment, regardless of the type of policy. Remember, before you are covered, you first have to get a physical exam from a company-approved doctor, so the company has an accurate picture of your medical history. Even after you pass your physical and your application is approved, your coverage does not start until your premiums are paid. Once your application is approved and your premiums are paid, only then is your policy is activated.

A qualified life insurance provider can give you the answers to all your questions. Let them help you customize your life insurance coverage to meet the needs of your family.

Tom Martens is the content syndication coordinator at Lifeinsurance-Southafrica.co.za South Arica?s leading Life Insurance and Life Cover portal.