This is a very common question from consumers purchasing life insurance for the first time. We'll explain it all in this article.
First thing you should understand is life insurance is purchased to protect your family or your business in the event of a premature death. Anyone who has people financially dependent on them should have life insurance.
Think of it this way. If you were gone tomorrow, would your family be okay financially?
The general answer to "How does life insurance work?" is you pay your life insurance premiums to keep your policy in force and when you die, your beneficiary(s) get the death benefit your purchased, TAX FREE!
You're basically transferring the risk from your family carrying the burden to the insurance company in case something (god forbid) happens unexpectedly.
How Obtaining Life Insurance Works
- Apply for life insurance. Complete an application and take a medical exam. You have to qualify for coverage based on your health and lifestyle.
- Receive An Offer. The life insurance company will make an offer after looking at your labs and reviewing your medical records.
- Accept The Offer. By making your first payment, you've accepted the offer and your policy is now in force.
- Pay Your Premium. As long as you pay your premiums, the coverage stays active.
Life insurance is a unilateral contract. Meaning you can cancel your individual life insurance at any time with no fees - you just lose your coverage. You're NEVER locked into a life insurance contract. On the other hand, the life insurance company is. If you have an in force life insurance policy, your life insurance company cannot cancel on you no matter what your health situation is. If it's a 20 year term, they have to insure you throughout the full 20 years regardless of health or lifestyle.
You have full coverage from day 1. If you buy a $500,000 policy and get hit by a bus the day after you accept the offer, the life insurance company is on the hook for the full $500,000 of coverage. In other words, you get the full peace of mind knowing your family is protected.
The ONLY 2 reasons a life insurance policy won't pay out is if you commit suicide within the 1st 2 years (in most states) or if you lied on your application. After 2 years of your life insurance policy being in force your, coverage is out of the contestability period. Which means the life insurance company has to pay the death benefit for any cause of death and cannot contest it.
If you have any other questions about how life insurance works, please don't hesitate to pick up the phone and give us a call. We'd be happy to answer any questions.