You probably already know how important life insurance is for your family. However, you may not be fully aware of how this insurance works, including what it covers and what types are available. This guide aims to answer these questions so you can make the most informed decision possible. 

A Brief Guide to Life Insurance

What Life Insurance Covers

Most matters of death, including those caused by illness and accident, are covered by life insurance policies. Death caused by hazardous activities, such as skydiving or bungee jumping, isn’t always covered. Also, deaths related to criminal activity are not typically covered.

Funds received from life insurance can cover end-of-life medical costs that your health insurance doesn’t. Life insurance earnings can also provide money for daily living expenses for a spouse and kids, burial costs, counseling, or utility bills.

Term Life vs. Whole Life

Most people choose term life insurance, the more affordable option. With term life, you’re covered for a prespecified period, usually 10 to 30 years. If you outlive the term, the policy is no longer active, and you must seek other options. This is the biggest downside of term life policies. 

As long as you pay the premium, whole life policies can be active for your entire life. They also have a cash value component, which can be borrowed while you’re still alive. This makes them a great investment tool. However, whole life is much more expensive, so it doesn’t always fit into everyone’s budget. 

How to Choose the Right Amount of Coverage

There are many formulas people use to calculate the right amount of life insurance for their families. Each person’s financial needs are different, so each person will have an amount of coverage that works best for them.

Start by adding together your income and assets and deducting expenses, such as mortgage costs and health insurance. Also, consider other payments you may have like college debt or retirement planning for a spouse. This should give you a reasonable estimate of how much insurance you’ll be able to afford.