What is life insurance?

 What is life insurance?

Life insurance is a contract between an individual and an insurance company. The individual, or policyholder, pays premiums to the insurance company in exchange for a death benefit payout to their designated beneficiaries upon the policyholder's death.

There are several types of life insurance policies, including term life insurance, whole life insurance, and universal life insurance. Term life insurance provides coverage for a specified period of time, typically 10-30 years, while whole life and universal life insurance provide coverage for the policyholder's entire life.

Life insurance is designed to provide financial support to the policyholder's beneficiaries in the event of the policyholder's death. The death benefit payout can be used to cover funeral expenses, outstanding debts, and other expenses the beneficiaries may incur. Life insurance can also serve as an inheritance or estate planning tool.

What is life insurance?

At its most basic, life insurance is a contract between you and an insurance company. Under the terms of the contract, you make regular premium payments to the company in exchange for a certain dollar amount of coverage. If you pass away while your coverage is in place, the life insurance company will pay out a death benefit to the beneficiaries you designate.

 

While the death benefit is the primary reason people tend to get life insurance, certain types of policies accumulate cash value, which is money that grows in a tax-advantaged way and is available for you to access throughout your life.

While there are many different types of life insurance, they all fall into two main categories:

Term Life Insurance

Term life insurance offers a death benefit for only a set period of time, which is the term. If you die within that time frame, your beneficiaries will receive the death benefit. After your coverage expires, there would be no payout to your beneficiaries.

Permanent Life Insurance

Permanent life insurance is a type of life insurance policy that provides coverage for the entire life of the policyholder, as long as premiums are paid. Unlike term life insurance, which only provides coverage for a specific period of time, permanent life insurance is designed to provide lifelong protection.

There are several types of permanent life insurance, including whole life insurance, universal life insurance, and variable life insurance. Whole life insurance provides a fixed death benefit and a guaranteed cash value that grows over time. Universal life insurance offers more flexibility in terms of premiums and death benefits, and allows policyholders to adjust their coverage and premiums as their needs change. Variable life insurance allows policyholders to invest the cash value portion of their policy in a variety of investment options, which can potentially increase the policy's cash value over time.

What is life insurance?

Permanent life insurance can be a good option for those who want lifelong coverage and the security of knowing that their beneficiaries will receive a death benefit upon their passing. However, it tends to be more expensive than term life insurance, and may not be necessary for everyone. It's important to carefully consider your financial needs and goals before choosing a life insurance policy.

What Is Term Life Insurance?

Term life insurance is a type of life insurance policy that provides coverage for a specified period of time, typically ranging from one to thirty years. This type of policy pays out a death benefit to the designated beneficiary if the insured individual passes away during the policy term.

 

Term life insurance policies are typically more affordable than permanent life insurance policies because they do not build cash value over time. Instead, the premiums paid go toward the cost of providing insurance coverage for the specified term. If the policy expires and the insured person is still alive, there is no payout.

What is life insurance?

Term life insurance can be a good option for those who want to provide financial protection for their loved ones in the event of their death, but do not want to pay the higher premiums associated with permanent life insurance policies. It can also be a good choice for those who only need coverage for a specific period of time, such as to cover the cost of a mortgage or to provide for young children until they become financially independent.

When someone else depends on you, it can be natural to wonder what would happen if you weren’t there to support them. Term life insurance can be an inexpensive way to help them financially if the unthinkable happens to you.

 

Here’s how it works: You pay yearly premiums (you can pay quarterly or monthly too, if you prefer) for a set number of years (the term). If you die during that time frame, your insurance company will pay out a lump sum, also known as the death benefit, to your beneficiaries. If you don’t die, the policy goes away once the term is over — you don’t have to pay your premiums anymore, but your beneficiaries are also no longer going to get a death benefit.

Term life insurance is typically cheaper than the other main type of life insurance: permanent. That’s because permanent life insurance will pay a death benefit no matter when you die, and it accumulates cash value that you can access during your lifetime. Term doesn’t do that.

Term life insurance is typically best to help cover a specific need that will end. For instance, if you have children, you might want enough money to take care of them and pay for things like college or maybe even a wedding someday if you die while they are young. If someone co-signed or could be on the hook for your private student loans, you may want coverage while you’re paying the lenders back so that person won’t be on the hook if you pass away.

TYPES OF TERM INSURANCE

Term life insurance is a type of life insurance policy that provides coverage for a specified term, typically ranging from one to thirty years. During the term, if the policyholder dies, the death benefit is paid to the beneficiaries. There are several types of term life insurance, including:

Level term insurance: 

The death benefit remains the same throughout the term of the policy

Decreasing term insurance: 

The death benefit decreases over the term of the policy. This type of insurance is often used to cover a specific debt or liability, such as a mortgage or business loan.

 Increasing term insurance: 

The death benefit increases over the term of the policy. This type of insurance is often used to provide coverage for anticipated increases in financial obligations, such as the birth of a child or a salary increase.

 Renewable term insurance: 

This type of policy allows the policyholder to renew the policy at the end of the term without having to go through medical underwriting again. The premiums for the renewed policy are typically higher than the initial premiums.

 Convertible term insurance: 

This type of policy allows the policyholder to convert the term policy into a permanent life insurance policy without having to go through medical underwriting again. This can be a good option for people who anticipate needing permanent life insurance coverage in the future but cannot afford the higher premiums at the time of purchase.

Group term insurance: 

This type of policy is typically offered by employers as part of an employee benefits package. The coverage is usually provided at a lower cost than individual term insurance policies, but the amount of coverage may be limited.

TYPES OF TERM INSURANCE

There are two types of term life insurance. The first is level term. As the name suggests, your premium stays the same each year. Level term policies typically last for a certain number of years, like 10 or 20. The second is annually renewable term. These policies are typically offered up to a certain age, like 80. However, you “renew” each year and pay more as you get older.

An annually renewable term life insurance policy is typically cheaper than a level term policy to start. But as you age, it can become very expensive. Because of this, level term is usually best when you know you won’t need to make changes to your policy in the future. But if you want more flexibility, annually renewable term may be a better option, as it will likely be less expensive up front

IS IT CONVERTIBLE?

If you don’t want permanent life insurance now but think you might in the future, consider getting a term life insurance policy that can be converted to a permanent policy. That’s because the amount you pay for insurance is based, in part, on your health. When you convert a policy from term to permanent, you don’t have to take another health exam. So if you develop a health condition after you buy your term policy, it won’t be factored into the cost of your permanent policy when you get it later.