What if you have life insurance through work? Your employer may offer life insurance as part of their benefits package, but it isn’t usually enough to cover major expenses. Most employer-sponsored policies equal to 1 – 2X your annual salary, but many financial experts recommend having about 10X that. Solely relying on employer-sponsored coverage may result in a coverage gap that would leave your loved ones unprotected in the event of your passing. And if you leave the company, your employer-sponsored life insurance might not stay with you. This is why many people purchase a personal term life insurance policy to supplement the coverage you receive through work
Your life insurance options. There are two broad categories of life insurance: individual and joint. When choosing between different policies, consider how long you want coverage, the purpose of the coverage, and how much you want to pay.
Individual policies. As the name suggests, individual policies insure an individual. Term and permanent are the two most common types of individual life insurance. Term life insurance. Term life insurance is often the most affordable and straightforward option. It provides coverage for a set period or “term” (typically 10–30 years) and is designed to protect your dependents during that term. If you pass away during the term period, your beneficiaries receive a lump-sum payment referred to as the “death benefit” to cover expenses or income loss related to your passing. If you pass away outside of the term
Joint policies. Joint policies insure more than one person, typically a married couple. Read on about the two most common types of joint
life insurance. First-to-die.
If a spouse were to pass away, a first-to-die policy generally pays a benefit to the surviving spouse, and the policy terminates after the benefit is paid out. This option assumes that the surviving spouse no longer needs life insurance. Depending on many factors, first-to-die coverage may or may not be less expensive than individual life policies. Second-to-die. Second-to-die life insurance usually pays a benefit to the beneficiary after both insureds in the marriage pass away. This option assumes that the surviving spouse will not need a death benefit paid out in their lifetime.
period, no benefits are paid. Permanent life insurance.
Permanent insurance can be more complicated than term, and it offers different benefits. There are many types of permanent insurance. Whole life is the most well-known form of permanent life insurance that lasts for the entirety of your life or to policy maturity, and a payout is often guaranteed at the time of death. Some of the money paid into the policy is typically set aside to build “cash value,” which can increase the death benefit or be accessed on a tax-free basis with a policy loan.
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