There’s a lot of talk about the different kinds of life insurance coverage, but not much discussion about what all policies have in common. Whether you own a term or whole life policy, one that comes with adjustable premiums, or a contract that lets you borrow against the built-up cash value, your particular policy has core components. When you want to do everything you can to protect your family, life insurance is a great addition, but you do need to educate yourself before jumping into the process.
In addition to the most obvious feature that comes with every carrier’s insurance products, premiums, expect to see fine print that describes how payouts work should the insured die during the coverage period. Also, behind every legal life insurance policy is a licensed carrier or company that issues it. Likewise, you’ll find specifics in your contract about how to name a beneficiary, which is a requirement, and other rules about keeping the protection intact, like paying premiums on time and notifying the issuer if you move your primary residence. Here are pertinent details about what every life insurance policy includes.
Premiums
The premium is the amount of money you pay, typically on a monthly or annual basis, for the amount of coverage stated in the policy’s contract documents. For example, you might choose to purchase term coverage that lasts for 30 years and costs $80 per month. In that case, your monthly premium is $80. The annual premium for that same policy comes out to $960. Some carriers offer small discounts for customers who use automatic bank withdrawal to pay premiums or who pay the entire year’s premium in a lump sum.
Payouts
A key part of every insurance contract, whether term or whole life, is a payout to a beneficiary upon the death of the insured. Payouts are the reason consumers purchase coverage in the first place. Fortunately, proceeds to surviving beneficiaries are usually not taxable, and the recipients can spend the funds however they wish. If you review a guide from Mason.com, it’s easy to learn all the facts about how life insurance payouts work. That way, if you find yourself on the receiving end of a beneficiary check, you won’t have to wonder what you can and can’t do with the money.
Carriers
Every contract has a carrier, namely the company that issues and backs the promise to pay a specified amount to a named beneficiary in the event that the insured dies during the time the policy is in force. You likely know the names of the world’s top insurance carriers, many of which are multi-billion-dollar corporations with excellent reputations and exceptional financial stability.
Rules
In the fine print of your coverage contract, there will be several rules that pertain to keeping the policy in force. Primary among them is that you continue to pay the premiums or else the police will lapse. Check your particular insurance contract to see what it takes to cause a lapse in coverage. Some carriers allow you to miss one payment while others are exceptionally strict, terminating the contract when customers miss a single premium payment.
Beneficiaries
Policies pay out death benefits to named beneficiaries. It’s entirely possible to have multiple beneficiaries on record, but there must be at least one to make the contract valid. Otherwise, the insurance carrier has no instructions for paying out the death benefit.