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How Life Insurance Works


Most people who wonder how life insurance works often get confused since many insurance companies offer additional types of coverage under the life insurance group. Usually plain life insurance policies only protect the policy holder’s family financially when the policy holder passes away due to natural causes or accidents. Additional types of coverage protect the policy holder when he is unable to work, gets seriously injured or falls seriously ill.

While selecting a life insurance policy, buyers have the option to select the cover amount. A smaller cover amount implies a lower premium and lesser benefits. Insurance experts usually advise buyers to select a cover amount that is equal or more than 10 times their annual salary since this protects the policy holder’s family for quite some time.

Every life insurance policy has a cooling off period and during this cooling off period the policy holder cannot avail of any of the benefits offered with the insurance. The buyer usually has the option to select a cooling off period, however many insurance companies only offer options to select from 30, 60, 90, 120 days.

The premium charged for life insurance policies have to be paid monthly or yearly and buyers can usually select one of these options when they apply for an insurance policy. The premium paid by the buyer depends on a few factors such as age, smoking status and gender. People who smoke will be charged a higher premium compared to people who do not smoke since people who smoke are in the high risk group.

Some insurance companies ask buyers to get medical tests done to assess their current health status and these tests are done at the expense of the insurance company. A few selected insurance companies do not ask for medical tests but they ask the buyer to submit the latest medical documents available. Usually insurance companies that do not ask many questions or do not ask people to do any tests charge a higher premium.

It is important to note that in the event a buyer does not pay premium the insurance company has the right to end the life insurance policy before the end of the tenure. For this reason, buyers are advised to carefully consider their financial status and financial obligations before opting for an insurance policy. While understanding “how life insurance works” you should remember that life insurance policies can help your family pay mortgages, loans and cover personal expenses in case of any unfortunate situation.

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