Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of an insured person. Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. The policy holder typically pays a premium, either regularly or as one lump sum. Other expenses, such as funeral expenses, can also be included in the benefits.
What is Life Insurance?
Life insurance gives protection of income in case the policy maker gets injured or passes away. The beneficiaries are named beforehand and all the proceeds go to them. In short, life insurance protects one from the financial impact of death of the person who is insured.
Understanding Life Insurance
The main purpose of life insurance is to give financial security to the beneficiaries in case the policy maker passes away. It is recommended that before you get life insurance for yourself, you assess the financial situation, and the standard of living that you want your dependents to have in case you pass away. It is advised that you review your life insurance at a yearly basis, especially if you experience a major change in your life like divorce, marriage, birth of a child, and acquisition of a major asset like a business or a house.
Types of Life Insurance
Term Life Insurance
This is designed for financial protection for a specific time, like for a decade or two. The premium stays for the period that you select, after which certain policies might still offer you coverage, but for a higher premium price. This can be used to replace loss of income during working years, and can provide security to your beneficiaries.
Universal Life Insurance
Universal life insurance gives lifetime coverage, and has extremely flexible policies that allow one to change their premium payments. This type of insurance is used to preserve wealth so that it is easily transferred to the beneficiaries.
Whole Life Insurance
This is permanent life insurance that gives lifetime coverage. Since the coverage period is for the entire life, the premium here is significantly higher than term life. Just like universal life, this is used to preserve wealth to transfer to the beneficiaries.
Determining the Costs
The premium costs are determined by assessing the risk related categories, but these don’t affect the amount or the duration of the coverage. The rate is determined by the following factors:
- Family medical history
- Overall health
- Your lifestyle
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