What is Life Insurance? Types and Importants Of Life Insurance

A key to financial security

Life insurance is defined as a type of insurance whereby a beneficiary or insured pays an agreed amount of money (called premium) to an insurance company to serve basically as a coverage for death protection and financial security.

The insured receives a death benefits if death occurs, the amount payed by the insurance companies depends on the premiums and also the type of insurance policy.

The beneficiary will have to disclose his or her current and previous medical conditions and high risk activities before the agreement between the two parties.

The death benefits will be paid to the named beneficiary as contained in the insurance policy.

Types Of Life Insurance

They’re different types of life insurance however we have two major ones which encompasses the other types as subcategories. They’re Term and Permanent Life Insurance.

Term Life Insurance

This type of insurance lasts for a specified number of years, death benefits are only paid when death occurs before the agreed duration comes to an end. The length of the policy can vary but it’s usually between one to 30 years.

They’re subcategories under termed life insurance, each with it’s own features to cater for your needs and preferences. They are:

Level Term

The benefits payed to the beneficiary stays the same throughout the duration of the insurance policy.

Decreasing Term

In Decreasing term the death benefit payed to the beneficiary decreases over the course of the policy term.

Convertible Term

Convertible terms allows the policyholder to convert a term life insurance policy to a permanent life insurance.

Renewable Term

This is a one year policy that the policyholder will have to renew after each year. This is helpful to anyone who needs life insurance for a short period of time.

Permanent Life Insurance

This type of insurance is effective until your death, it has no specified duration which means that death benefits is guaranteed until the policyholder passes on. They’re three subcategories under this type of life insurance and are as follows:

Whole Life Insurance

This is the simplest form of permanent life insurance policy, it guarantees the policyholder coverage spanning through your lifetime. It includes a cash component which you can borrow or work away with if you decides to surrender the policy.

The premium stays the same throughout the life of the policy, and the death benefit also doesn’t change.

Universal Life Insurance

Universal life policy comes with the same cash component and lifetime coverage just as Whole life policy but with added flexibility allowing you to vary the amount payed as premiums. This is possible when enough money has accumulated in your cash value account.

It’s important to know that adjusting the amount payable as premium might result in having to pay higher in later years to keep your coverage. It can also decrease the value of your death benefits.

Variable Life Insurance

This gives you the same lifetime coverage just like other permanent life insurance but allows you to control how your cash value is invested in stocks, bonds or money market funds.

This gives your policy the potential of growth but also leaves you the risk of decreased cash value and death benefits if the investment doesn’t perform well. The premiums for this type of insurance doesn’t change.

Variable Universal Life Insurance

This is a form of variable life insurance but with features of a universal life policy, which gives you the investment options as well as a flexible premium and death benefits.

Indexed Universal Insurance

This type of universal life allows the policyholder to earn a fixed or equity-indexed rate of return on the cash value component.

Why is Life Insurance Important?

Death is an uncertainty; nobody plans to die but death is inevitable. You cannot stop uncertainties but you can prepare for them. Besides impromptu occurrences, people die untimely.

The need for a life insurance is to financially compensate the family members of the deceased for their lost. There are also other bonuses offered by the Insurance policy.

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