What is basic life insurance? Like apples, at its core nothing about basic life insurance is complicated. When you pass away, funds are provided by your insurance provider in accordance with the contract you set up. You name beneficiaries or a beneficiary in this set up that will receive this money once you pass away. Basic life insurance is usually only given out through employee group benefits and is generally given without any need for medical exams or questions.
However, there are exceptions and key pieces of info that can be invaluable to know when signing up for life insurance regarding coverage and if you want to pursue additional coverage.
We discuss those in detail below.
What Basic Life Insurance Payouts Can Be Used For and How Additional Coverage Can Help
Because a basic life insurance payout doesn’t have ties to any kind of specific kind of use, theoretically the money could be used for anything.
Hold on though.
While it might be tempting to consider getting a new car, house, or a car that is also a house, it’s highly recommended that you use the funds for other means.
Debts
First and foremost, any debt that would still exist after a loved one passes away is one of the best choices to deal with using a life insurance payout. Not only does this give you more peace of mind moving forward, but it also frees up money you can dedicate to more crucial expenses every month.
Major Bills
Raising a family is expensive. If one parent passes away it can be challenging to have enough steady income to keep the lifestyle you’re used to. You can use a portion of the payout to ensure the bills continue to be paid on time without needing to drastically change your lifestyle.
You can also use the money to contribute to child care like setting up your child or children with daycare if you need to be at work or paying for after-school programs.
College/University Expenses
Speaking of children, a life insurance payout can also be used to help with tuition and any sort of college or university expenses. This can make it financially easier for your son or daughter to afford a better lifestyle for them at their institution and reduce or eliminate their need to take out a student loan.
Types of Death That Are Covered By Life Insurance
Standard life insurance policies cover almost all deaths due to an illness, accident, or natural causes with a few potential exceptions.
How Basic Life Insurance Works for Illnesses Like the Coronavirus
Yes, life insurance will still give a payout if you passed away due to the coronavirus. The same applies to other fatal illnesses like strokes and heart disease.
How Basic Life Insurance Works for Accidental Death
Like illnesses, you’ll also get a life insurance payout for accidental death like being in a vehicle collision.
However, some policies only have accidental death and dismemberment (AD & D) coverage which will only cover death in some cases. Accidents are generally covered, but the coverage for death is typically minimal compared to basic life insurance.
How Basic Life Insurance Works for Natural Causes
Your beneficiaries will receive a life insurance payout if you die of a heart attack, old age, or cancer under most standard life insurance policies.
Make sure to talk to your life insurance provider if you have any questions about coverage.
When Are You Not Covered by Life Insurance?
There are only a few cases where you’re not covered by life insurance:
- Your policy has expired: Naturally, if your policy ends or expires before you pass away you will not receive a payout or have coverage.
- Fraud: Your life insurance policy is created on the basis of trust. If you misrepresent anything on your policy then it is considered grounds for a denial of coverage or a reduced payout amount.
- Committing a Crime: Okay, this is going to be in a very small number of cases, but if you die committing a crime like a robbery you’ll also be denied a payout. Crime literally doesn’t pay.
Life insurance can give you peace of mind knowing the people you care for are financially set up if you’re not there to help them out. The funds from a payout can be especially valuable and go a long way to helping the people you love continue to live the lifestyle they worked hard to get and to give them the best possible life.