A Life Insurance policy is a contract with an insurance company. In exchange for premiums paid, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries in the event of the insured’s death.
Life insurance is a way of providing income replacement for financial dependents (the beneficiaries) after the insured person dies. It is intended to replace lost income and pay for any additional expenses that are experienced by those left behind when a family member who contributes income or services to a household is lost. It can also be used for final expenses, like medical bills or funeral costs that survivors would have to pay when a death occurs.
Most often the amount of Life Insurance required is determined by analyzing the financial risk of loss should the applicant pass away. Factors included in this calculation, beyond the ones mentioned above, also include mortgages, debts and future savings.
Life Insurance is most certainly an important part of financial planning for families and individuals.