Life Insurance Is The Simplest, Least Expensive And Most Popular Type Of The Life Insurance, The Life Insurance Should Cover Financial Nesecidades Their Dependents In The Event That You Are No Longer There To Care For Them.
There are several different types of life insurance available; therefore it is important that you understand your options before you purchase a policy.
Most life insurance policies fall
• Term Life Insurance
• Permanent Life Insurance
• Variable Life Insurance.
Each of the above types of life insurance is described below.
Term Life Insurance
Term life insurance is the simplest, least expensive and most popular
Term life insurance provides coverage for a fixed period of time, for example 20 years. If the policy is not renewed before the end of the coverage period, it will expire.
A term life policy only pays a benefit to your beneficiaries if you pass away during the coverage period.
Unlike permanent life insurance, because there is a chance that the insurance company will not need pay out the benefit, term life insurance is much cheaper than other types of life insurance.
Because a term life insurance policy has an expiry date, it is also known as temporary life insurance.
There are a number of reasons why you might only need life insurance for a fixed period of time:
• You may only need coverage until your children have graduated from high school or college, after which they no longer need your financial support;
• You may only need coverage until you have paid off the mortgage on your house, which ensures that your spouse and/or children can continue living in the family home if you are not there to provide them with financial support; or
• You may only need coverage until you retire, after which your retirement savings may provide sufficient income for your spouse or other dependents.
Permanent Life Insurance
Permanent life insurance differs from term life insurance in that the policy never expires, unless you choose to cancel it or you do not pay your premium.
A permanent life insurance policy has a maturity date, typically the date the insured reaches age 95 or 100.
The insurance company must pay out the policy benefit at the earlier of your date of passing away or the maturity date, even if you are still alive at the maturity date.
The most common forms of permanent life insurance are whole life insurance and universal life insurance.
Whole Life Insurance
The premiums for a whole life insurance policy remain fixed throughout the life of the policy.
The increasing costs of insurance as you age are smoothed throughout the policy period so that your premium never changes.
Because the premiums paid exceed the insurance company’s cost of insurance, the policy accumulates a cash value based on the excess premiums paid.
This cash value is invested by the insurance company and interest is credited to the account on a monthly basis.
All earnings are tax-deferred.
Universal Life Insurance
The premiums for a universal life insurance policy are flexible – the policy benefit is simply adjusted to accommodate any change.
This allows the policyholder to increase (subject to insurability) or decrease the benefit without the need to surrender the policy and to purchase another one.
A universal life policy accumulates a cash value to the extent the premiums paid exceed the insurance company’s cost of insurance.
This cash value is invested by the insurance company and interest is credited to the account on a monthly basis.
All earnings are tax-deferred.
Other Policy Features
At any stage prior to maturity (subject to some restrictions), the policyholder may:
• Surrender the policy for the accumulated cash value less any surrender charges;
• Withdraw part of the cash value (which will also have the effect of reducing the death benefit); or
• Use the policy as financial security in order to borrow money, often at low interest rates.
Variable Life Insurance
Variable life insurance is actually another form of permanent life insurance, but with a greater investment focus.
Variable life insurance includes an investment account that allows you to invest in securities such as stocks, bonds and mutual funds.
The policy benefit amount changes based on the performance of your investment account.
The greater your investment earnings, the greater the benefit. All investment earnings are tax-deferred, allowing your account to grow more quickly.
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