What Is Life Insurance?

Life insurance is a contract, often called a “policy”, between you and an insurance company to provide money to a person you designate, in the event that you die during the time the contract is in force. In essence, during your lifetime you pay money, known as the insurance “premium”, to the insurance company. It promises to pay money to the persons you name, the “beneficiaries”, at your death. Some types of life insurance also give the policy owner the right to “borrow” a portion of the “cash value” within a policy, or to receive an “accelerated death benefit” if you become terminally ill or require confinement in a long term care facility.

Case Studies: Understanding Life Insurance

Case Study 1: Providing Financial Security 

Sarah, a 35-year-old mother of two, recognized the importance of securing her family’s financial future. Concerned about what would happen to her children if something were to happen to her, Sarah decided to purchase a term life insurance policy. She selected a policy with a coverage amount that would be sufficient to cover her children’s education expenses and other financial needs in the event of her untimely death. The policy provided Sarah with peace of mind, knowing that her loved ones would be financially protected even in her absence.

Case Study 2: Building Cash Value 

Mark, a 45-year-old professional, wanted a life insurance policy that not only provided a death benefit to his family but also acted as an investment tool. He opted for a whole life insurance policy, which not only offered lifelong coverage but also accumulated cash value over time. Mark saw the cash value component as a way to build savings that he could access if needed in the future. The policy’s cash value also provided Mark with a source of emergency funds and a potential supplement to his retirement savings.

Case Study 3: Financial Planning for Retirement

Susan, a 55-year-old nearing retirement, sought to ensure her financial security during her golden years. She decided to purchase an annuity, a form of life insurance that provides a guaranteed income stream during retirement. Susan selected a deferred fixed annuity, allowing her to make periodic contributions leading up to retirement. With this strategy, Susan aimed to create a stable income stream to complement her pension and social security benefits, providing her with a comfortable retirement lifestyle.