Life Insurance Basics

The process of buying life insurance is a series of decisions: choosing a type of policy, selecting your level of coverage, and naming a beneficiary are all important decisions you will have to make.


This section:

  • Explains the purpose of life insurance at its most basic

  • Helps you figure out how to name a beneficiary

  • Begins to explain how to calculate coverage amounts

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The purpose of life insurance

In its most basic form, life insurance offers security in the event of your death. Like all insurance, life insurance protects your family from the risk of financial ruin. It provides your dependents with the necessary funds to settle your financial obligations and to cover the loss of income created by your death.

That is the standard definition of what life insurance is supposed to do for you. For a much more in-depth look at the subject, please read our section on the benefits of life insurance.

Your decisions

This basics section is dedicated to exploring the three decisions you will have to make when purchasing life insurance coverage. They are:

  • choosing a beneficiary
  • choosing the type of policy best suited for your needs
  • selecting the level of coverage

Sidebar
One thing should not be a tough decision when buying life insurance: where to go to compare quotes, and learn more about big-name providers.
At Efinancial, our provider of choice, you'll get multiple quotes instantly, and you'll be able to request more information from insurers that provide the lowest quotes.

But for now, let's look at the three decisions you will have to make:

Choosing the beneficiary

The beneficiary, put simply, is the person whom you want to receive the life insurance proceeds at the time of your death. Usually, this is pretty cut and dry. A spouse is the most common beneficiary, followed by children, but anyone can be named as a beneficiary. (More on choosing the beneficiary)

Choosing the types of insurance

The types of insurance are categorized as term or permanent insurance. Both offer basic coverage, but for different time periods. The cost of term life insurance is usually much, much lower than permanent insurance.

However, price should not be the deciding factor, rather your family's security should be. So, take the time to read through the details of each type of insurance while weighing your needs and each policy's benefits. (More on policy types)

Calculating the level of coverage

The amount of money your family receives after your death is called a "death benefit". You might be more familiar with a person being insured for a specific amount, and that is exactly what the death benefit is: the amount for which you are insured.

When you purchase a life insurance policy, the death benefit is calculated to cover your specific financial circumstances. Your dependents, debts, and standard of living should all be taken into account. Of course, the more the death benefit is, the more expensive the policy will be. (More on selecting coverage levels)

Next: A look at naming your life insurance beneficiary.

Learn even more:

Getting the lowest possible premium on your life insurance is almost like an art form. There are many variables to consider, and to get the right balance of term length, benefit amounts, and policy riders and illustrations, you need to take a careful step-by-step approach to the buying process.

Our free life insurance course is designed to help you do just that.

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