Life insurance is a contract between an insurance policy holder and an insurance company or insurer. when the insurer agrees to pay a designated beneficiary a sum of money (the benefit) in exchange for a premium, upon the death of an insured possessor. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment. The policy holder usually pays a premium, either on a regular basis or as a lump sum. Other expenses (such as funeral expenses) can also be included in the benefits.
Life policies are legal contracts and the terms of the contract describe the limitations of insured events. Specific exclusions are often included in the contract to limit the liability of the insurer; Common examples are claims related to suicide, fraud, war, riots and civil commotion.
Types of Life insurance policies:
There are different types of life insurance policies.Some of the common and regular policies are given below:
Term Life Insurance:
Term life insurance is designed to provide financial protection for a specific period of time, such as 10 or 20 years. With traditional term insurance, the amount of the premium payment remains the same during the coverage period you select. After that period, policies can offer continuous coverage, usually at a substantially higher premium payment rate. Term life insurance is generally less expensive than permanent life insurance.
Needs: The term life insurance product can be used to replace potential lost income during the years of work. This can provide a safety net for your beneficiaries and can also help ensure that the family's financial goals are still met - goals such as paying a mortgage, keeping a business running and paying for college.
It is important to keep in mind that although term life can be used to replace potential loss of income, life insurance benefits are paid at one time in a lump sum, not regular payments such as paychecks.
Universal life insurance:
Universal life insurance is a type of permanent life insurance designed to provide lifetime coverage. Unlike whole life insurance, universal life insurance policies are flexible and can allow you to raise or lower your premium payments or coverage amounts throughout your life. Additionally, because of its lifetime coverage, universal life typically has higher premium payments than the term.
Needs :Universal life insurance is most often used as part of a flexible estate planning strategy to help preserve the wealth that is transferred to the beneficiaries. Another common use is long-term revenue replacement, where the need extends beyond the years of work. Some universal life insurance product designs focus on providing both death benefit coverage and cash value construction, while others focus on providing guaranteed death benefit coverage.
Whole life insurance :
Whole life insurance is a type of permanent life insurance designed to provide lifetime coverage. Because of the lifetime coverage period, whole life usually has premium payments higher than the term life. Payments of policy premiums are usually fixed and, unlike the term, whole life has a cash value, which functions as a savings component and can accumulate deferred taxes over time.
Needs: Whole life can be used as an asset planning tool to help preserve the wealth you plan to transfer to your beneficiaries.