Life insurance is a contract between an insurer and a policyholder who pays regular premiums in exchange for a lump-sum benefit to be paid to named beneficiaries, upon his death. It helps beneficiaries cover financial expenses that the death of the policyholder would have, otherwise, made difficult.
Life insurance policies are set up so that when a policyholder passes away, the beneficiaries will receive a lump-sum that can be used to meet several needs. These may include funeral expenses, school fees, paying off loans, or even everyday bills.
After the policyholder dies, the beneficiaries will have to file a death claim with the insurance company to start the process of claiming the payout. This is done by submitting a copy of the deceased’s death certificate. The insurance company reviews the claim and verifies its authenticity before issuing the payout. If the circumstances surrounding the death of the insured seem ambiguous or fraud is suspected, the insurer can choose to investigate so as to verify the authenticity of the policyholder’s death. The average amount of time taken to process a claim can be anywhere between 30 to 60 days.
Types of Life Insurance Coverage
If you have people that depend on your income, you don’t want to leave them financially stranded after your passing. Though several forms of life insurance policy are available, the most common ones are:
- Term life InsuranceThis policy provides protection for a specific number of years. It is less expensive than the other types of life insurance and is perfect for first-time life insurance buyers. It mostly provides coverage for 10, 20, or 30 years. However, many companies offer up to 35 or 40-years of term life insurance. No matter how long the term is, this type of insurance is still temporary as you can outlive it.
- Whole Life InsuranceThis policy provides coverage throughout the policyholder’s lifetime as long as the premiums are paid regularly. It usually has a savings component that provides a living benefit to the policyholder. The cash in the savings component can build up in value over time or be invested.
- Universal Life InsuranceJust like the whole life insurance policy, universal life insurance also provides coverage for the policyholder’s lifetime. However, it offers a flexible-premium option so the insured can choose the range of premium they can remit, rather than having to pay a fixed sum. This type of life insurance also has a savings component.