How Life Insurance works?
Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a selected beneficiary a sum of money (the benefit) in exchange for a premium, upon the death of an insured person (often the policy holder).
In simple words, Life Insurance is the insurance an individual does for himself or herself for the enjoyment of his or her family. Thus when he or she dies, the family of the deceased gets a certain amount of money from the insurance company as a condolence for their loss. Moreover, life insurance isn’t always about death.
Certain dreadful situations such as terminal illness or critical illness can also trigger payment. The policy holder basically pays a premium, either regularly or as one whole sum.
Life policies are legal contracts and the terms of the contract portray the limitations of the insured events. Thus, not every situation of death will count for the insurance company paying the benefits.
Specific exclusions are clearly documented in the contract to limit the liability of the insurer; instances such as suicide, riot, civil commotion, fraud, and war won’t attract payment of benefits.
One of the best ways to protect against the financial consequences of a primary wage earner’s premature death is life insurance. However, choosing from the many types of life insurance policies that are available can be a difficult process. A few main categories are described here to help you secure a life insurance policy that is felicitous for you.
What Are the Basic Types of Life Insurance?
Do you want to get insured?
One of the ideal ways to protect your family against the financial after-come of a primary wage earner’s premature death is life insurance.
Life insurance is the best way to ensure the safety of their family when an unforeseen circumstance happens. However, choosing from the many types of life insurance policies that are available can be a cumbersome process.
A few main categories are described here to help you locate a life insurance policy that best suits you.
Remember that the cost and availability of insurance depend on factors such as
- Health, and
- The type and amount of insurance purchased. (60+ individuals may not be permitted to insure their lives since they might have few years to live).
Before implementing a strategy involving insurance, it would be considerate to make sure that you are insurable.
Basically there are two major types of Life Insurance policies.
Each has its own benefits and limitations. Before you decide to go on a Life Insurance, make sure you have in depth knowledge about each policy and how it works.
Term life insurance
This is the most basic and usually the most affordable Life Insurance policy. Policies can be purchased for a specified period of time. If you die within the defined period of time in your policy, the insurance company will pay your beneficiaries the face value of your policy.
Policies can be bought for 1-30year time spans. Annual renewable term insurance usually can be renewed every year without proof of insurability, but the premium may increase with each renewal.
Permanent life insurance
There are basically three main types of Permanent Life Insurance, they include;
Whole life insurance
It has a premium that stays the same throughout the life of the policy. The benefit increases as the insured person ages, and it obviously gets very high when the insured lives to 80 and beyond.
Universal life insurance
This type of permanent life insurance goes a bit further, you may have the same type of coverage and cash value as you would with whole life, but more flexible. You may be able to change the frequency, just as the amount, of your premiums you pay, once money has accumulated in your cash-value account.
It’s important to remember that altering your premiums may decrease the value of the death benefit.
Variable life insurance
In variable life insurance, you are given control over how your cash value is invested. You have the choice of deciding how to invest your cash values either in stocks, bonds, or money market funds. However, if your investment doesn’t perform, your death benefits may reduce.