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Life Insurance Explained:

What is life insurance?

A life insurance policy will pay a beneficiary a cash amount after the demise of the policy holder. This amount will vary depending on your amount of coverage.

Term life insurance refers to a certain period of time (term) where the insured person will be covered by the insurance plan. For example, if someone purchases a 25 year term life insurance plan, and dies within that 25 years, their beneficiary would receive a death benefit. However, if the person died in 26 years, they would not be covered.

Term life insurance will pay a benefit if the policy holder dies within a certain amount of time. Permanent life insurance will pay a benefit for as long as the policy is active. Term life insurance is normally less expensive than permanent life insurance, but will not allow you to use your policy as an investment vehicle.

The amount paid to your beneficiary can be used for a number of things, funeral expenses, debt repayment, estate tax, probate costs, income replacement, education and many other things.

A beneficiary is a person that you have selected who will receive the benefit from your policy after your death. You can have more than one beneficiary on most life insurance policies.

This is a question that should be carefully considered. You will need to discuss this with your financial planner to estimate how much will be required by your beneficiaries after your death. There are many factors to consider, such as how large your family is, how many children you have that will need higher education, how much debt you have, etc.

Yes. This rating refers to the financial stability of a life insurance company. The A.M. Best rating lets you know that you are placing your policy with a solid company that will be around to make payment when the time comes.

This will depend on your insurance company. Many companies will "lock-in" a rate, while others may change their rates over time. Make sure that you completely understand not only what your current costs will be, but also your future premium costs.

Yes, the more units you buy, the cheaper your life insurance plan premiums will be. However, it is important not to overbuy your life insurance. Most companies will allow you to purchase more coverage at a later date.

Most companies feature lower premiums if they are paid a year in advance. In addition, if you have several risk factors, such as smoking, weight problems, or high-risk activities, curtailing these problems will lower your premiums.

Insurance companies assign rate classes to individuals who fit into certain risk categories. For example, smokers would be in a higher rate class, while non-smokers would be in a lower rate class, paying less on their premiums. Your rate class can change over time, and may result in a loss of coverage or a higher premium.

You will need to first fill out an application. After your application is received, you may be required to undergo a medical exam by the life insurance company. Your information is then sent to an underwriter and once this step is complete, your life insurance company will issue your policy.