Understanding how life insurance works is crucial for anyone looking to protect their loved ones financially. Life insurance provides a safety net that ensures your family's financial security in the event of your death.
When you purchase a life insurance policy, you agree to pay regular premiums to the insurance company. In return, the insurer promises to pay out a predetermined sum of money, known as the death benefit, upon your passing. This money is typically tax-free and can be used by your beneficiaries to cover various expenses such as funeral costs, mortgage payments, or daily living expenses.
However, it's important to note that life insurance doesn't only come into play when you die. There are different types of policies that offer additional benefits while you are still alive. For example, some policies include cash value accumulation, where a portion of your premiums is invested and grows over time. This cash value can be accessed during your lifetime through withdrawals or loans.
If you don't die during the term of your policy or before reaching its maturity date (in the case of permanent life insurance), there are several possibilities depending on the type of policy you have chosen. Term life insurance policies typically expire at the end of their term with no payout if you survive beyond that period.
On the other hand, permanent life insurance policies provide coverage for your entire lifetime and often include a savings component called cash value. If you outlive this type of policy, you may have several options available including surrendering it for its cash value or converting it into an annuity.
To better understand how life insurance works. Learn the following:
What Does Life Insurance Cover?
Life insurance usually covers all causes of death, but usually excludes death within the first two years of the policy. Most of the causes listed below are fully covered by the insurance company.
- Types of accidents, such as car accidents or work accidents.
- Serious illnesses, heart attack or stroke
- Being killed by someone else (except where the insured is murdered by the beneficiary)
- Died due to old age, and poor health.
- War or terrorism.
In many cases, policyholders are willing to invest in a life insurance policy with the aim of completely replacing their income after their death so that the ultimate beneficiary can cover the costs. Cost includes:
- End-of-life expenses, such as funeral and burial expenses.
- Mortgage Payment
- Paying for their children's school fees
- Pay off personal debts, including outstanding debts or credit card bills.
- Types of daily living expenses.
- Build inheritance for children.
- Make a charitable donation to the organization chosen by the contract owner.
What Doesn’t Life Insurance Cover?
When researching life insurance packages, you will be advised by a staff member specifically about the cases in which life insurance does not cover. These cases are specifically named and there are no exceptions. Based on this list, you can see if your condition is covered by the insurance company. In addition, you can also ask the consultant directly for a clear answer because each insurance company has a different payment term. Usually, most insurance companies do not pay compensation in the following cases:
- The act of suicide (Most insurance companies deny claims for this act).
- Declare your current health condition dishonestly (life insurance companies still have the right to refuse a claim if they believe there is a misrepresentation in the life insurance application, especially if death occurs within the first few years of contract ownership).
- The policyholder is killed by the beneficiary (This is a rare but possible event; most insurance companies will deny a claim in this case and if it is considered a Real).
In addition to the life insurance cases not covered in the list above, there are still some other cases that are not covered including:
The occurrence of a risk is included in the exclusions of the insurance.
Including death due to intentional or active participation in dangerous actions that threaten health, life, or real injury, use of stimulants or banned substances, ... by the competent authority. appraisal function.
If a patient is in the course of medical treatment if the condition tends to worsen or prolong the treatment period due to the client's failure to comply with the treatment methods as directed by a qualified doctor or by medical authority. The same is true for pre-existing or inherited diseases.
Cases of death but breaking the law or having behavior breaking the law are also not covered by the life insurance company. The insurance company does not cover cases such as inciting violence, fighting, or causing riots.
The professional athletes participating in extreme sports who die may also fall into other situations where insurance does not cover (depending on the payment terms of each different insurance company).
The risks that occur are not in the terms of the signed contract.
The insurance company will only pay to the beneficiary or the protected person if the insured is at risk is clearly specified in the contract. If the risk does not fall within the above range, the insurance company is not responsible for paying the customer.
The risk occurs when the insurance contract expires.
If the contract expires, the customer will not be paid by the insurance company because the company is no longer responsible for the insured.
Which Life Insurance Product is Right for You?
Term Life Insurance: A term life insurance policy that lasts for a specific period of time, usually 10 to 30 years, and premium payments do not change throughout the term of the term contract. During the term, the policyholder makes fixed premium payments in exchange for a guaranteed death benefit.
If you die during the policy term, your beneficiaries can claim and receive a tax-free death benefit.
When the insurance contract expires, the policyholder can renew the coverage year by year or convert it into a permanent contract.
Term life insurance is often the most affordable policy available and has the largest number of participants.
Whole Life Insurance: is a service that provides lifetime insurance and is much more expensive than term life insurance. Because it lasts your entire life, there is a distinct cash value component, and internal policy costs may be higher.
The cash value component is accrued on a tax-deferred basis over the life of the contract. It acts as a savings part of the policy. The cash value component increases when the insurance company pays a dividend, a portion of the insurer's revenue is paid out to policyholders. You can borrow against the policy's cash value or withdraw funds into your account if you wish. If you want to terminate the contract early, you will receive a cash value as low as 60% of the amount you paid previously after deducting costs.
In summary, life insurance offers financial protection for both you and your loved ones. It provides peace of mind knowing that if something were to happen to you, those who depend on you will have financial support in place. Additionally, certain types of policies also offer benefits while you are alive, allowing for flexibility and potential growth in funds over time.
