Life Insurance
Most people have a general idea about life insurance and how it works...
...and if that's you, then go ahead and skip a few paragraphs. If not, then here's our best explanation:
For simplicity and familiarity let's use car insurance as an example:
You have a car - it needs to be insured to mitigate and reduce financial loss if/when your vehicle causes damage. (We're sure you wouldn't want to hand over an immediate 5-6 figure check, because of an accident, would ya?)
An insurance company will consider placing that risk on their shoulders, because they have hundreds of millions of dollars in reserves. Some things they will consider for your eligibility are your age, driving record and a few other things.
If you don't pose a huge risk to their bottom line then they'll approve you for a specified rate (Sometimes at cheaper rates, depending on how safe of a risk you are.)
Now, if/when you have to replace that vehicle or cover losses then you're covered by the insurance company (up to a certain dollar amount.)
For life insurance its similar:
The life insurance company makes their decisions based off of risk as well, only this time it's the risk of you dying and a check getting sent to your loved ones in order to cover immediate funeral expenses, your lost income, pay off the house & debts, send the kids to college or leave money to the family for the future!
If you really think about it, that could EASILY add up to a 6-7 figure dollar amount, agreed? And just like the car insurance scenario where you wouldn't want to sign over the check for an accident; your family may not want to, or even have a check big enough to cover losing you!
There you have it in a nutshell. It's simple:
You pay ▶️ you die ▶️ they pay
"So, how is it relevant to me?"
- A recent study shows that 100% of people die. The immediate cost upon dying is a funeral bill (You can see some of the costs here 🔘) SOMEONE is going to have to pay for it. Ask yourself WHO and do they have that kind of money laying around to cover it all?
- Do you have a spouse & children? Do they rely on you in some form or fashion, either financially or another type of way, like as a caretaker, home-maker, etc...? If so, that means that your family is your responsibility while you're alive... does that responsibility go away when you die?
- Do you have a mortgage, student loans or credit card debt? Those obligations also do not go away when someone dies, and in most states the surviving spouse inherits it all! Imagine losing an income, still having to maintain bills AND have creditors bothering you while you're trying to process the loss of your family member.