How Does Life Insurance Work?

mariadrg2021
Sep 14
2 min read

Life insurance is a key tool to protect your family and your assets. Understanding how it works and the types of policies available can help you make the best decision for your financial and protection needs.

How does it work?

Choosing a policy: You and your local agent work together to determine the right policy for your situation.

Paying premiums: You make regular payments (“premiums”) to your insurance company.

Beneficiary benefits: Upon your death, the insurer pays a specific amount to the person or people you designate.

Additional provisions: In some cases, if you face an illness or qualifying situation, or need additional income during retirement, you may access additional benefits included in the policy.

Types of Life Insurance

Term Life Insurance

The most affordable type of life insurance. Provides temporary coverage (10 to 30 years). Premiums are usually lower but may increase over time. Most policies do not build cash value, although some plans allow conversion to permanent coverage.

Permanent Life Insurance

Lasts your entire lifetime as long as premiums are paid. Offers options to enhance coverage with valuable riders or additional provisions.

Fixed Universal Life Insurance (FUL)

Provides flexible premiums and builds cash value with a fixed interest rate inside the policy.

Whole Life Insurance

Offers level premiums, guaranteed benefits, and cash value accumulation. The policy’s value may increase thanks to dividends paid by the insurance company.

Indexed Universal Life Insurance (IUL)

Combines flexible premiums and adjustable benefits with the potential to earn interest based on market indexes—without directly investing in the markets.

Which option is best for you?

The answer depends on your needs:

Looking for temporary and affordable coverage? → Term Life.
Want lifetime protection with cash value? → Permanent Life.
Prefer flexibility and adjustable benefits? → Universal options (FUL or IUL).

At MDR Tax Filing, we understand that choosing the right life insurance policy is just as important as planning your taxes. Our team can guide you toward more complete financial decisions, ensuring not only peace of mind with your taxes but also protection for your family.

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