Hey guys.In today’s article I want to share with you about what is life insurance and how does it work? You see, there are many unexpected things that occur in our lives. We might pass away or due to an accident or we might pass away due to an illness.But there is one thing that we are % sure of that is we will pass away some day in our lives.You see, insurance is a product designed to provide you a measure of protection,at least financially should a disaster happen. And life insurance is specifically designed to protect your beneficiaries financially should you pass away one day.
So what exactly is life insurance and how does it work?
You should buy a life insurance if you have anyone who may depend on you for financial support.For example your kids or elderly parents.However, if there is no one that requires you to support you financially, then life insurance is not required.Now let’s take a look at a typical example.On life insurance .
we have John, a year old sole breadwinner of a family with a wife and two lovely kids.Like most families, John has a property on mortgage, kept aside in cash and the same amount owes to a creditor in debt of $,.Now if one day when John passed away,his estate would have to be distributed. Firstly, his , cash set aside might be taken away by his creditor. Secondly, because he’s the only one working in the family, his property on a mortgage might be taken away as well.This leaves his wife and kids with no shelter and no money to survive.His kids might also be in college and will be deprived of the needed funds for education.But wait can all these problems be avoided if and only if John had a little life insurance?
Now the next question is should you buy a life insurance?
Now let’s take a look at what happens John did purchase a life insurance policy.If John did purchase a life insurance, his commitment will be to set aside a portion of his income and give it as a premium to XYZ Insurance Company.Upon John’s death, XYZ Insurance Company will provide John’sfamily a lump sum that is called the death benefit, which will go to his family.Now, this lump sum of money can be used to pay off his mortgage loan, his family’s expenses, and in most jurisdictions, this sum of money is being protected from his creditors.His children now also have the required money to go into college.Now you see why life insurance is important to everyone with a dependent.