Life Insurance Overview
A life insurance policy can best be described as a contract between the insured (the policyholder) and an insurer. It is meant to serve as a surrogate economic support for the family of the policyholder in case of premature death. The effect of life insurance on dependants is quite favorable as no dependants are left in financial difficulty because; they are able to meet basic needs such as housing, education, and general living costs.
In most cases, the policyholder agrees to pay premiums to the insurance company in exchange for a specified amount of money payable on death (death benefits). This death benefit is available for one or several named beneficiaries who are still alive at the time of the policyholder’s demise. It helps in relieving a great deal of burden by providing an insurance cover for the everyday requirements and extending this cover to repayment of mortgages and funeral matters. The arrangement gives both the insured and the dependants peace of mind.
Key Takeaways
In the case of life insurance, it provides protection in a monetary form by assuring certain benefits on the death of the policyholder to the specified beneficiaries.
The policy can be funded in various ways including a lump sum payment, or paying premiums on a periodic basis.
Usually, policies may be classified as temporary (term) insurance or permanent (whole) insurance, based on the duration of their intended coverage.
Thus, in addition to paying for premiums for whole life policies, the policy owner earns cash value which is also availed for loans if necessary.
Types of Life Insurance
Life insurance policies are broadly categorized into two types: In this context, life insurance can be classified into two broad categories namely; term life insurance and permanent life insurance. The selection between the two mainly depends on the ultimate financial objectives that the policyholder has, his/her family requirements, and the cost factor.
Term Life Insurance
It is however important to note that Term life insurance is set to have a limited time, i.e. it is for a fixed term only. Policyholders select durations in form of 10 year, 20 or 30 years. Such insurance is helpful for people who search for cheap insurance for rather a short period, for instance, parents, who need to provide money to their children until the latter go in for themselves.
Aim of term life insurance has been because of its cheaper price to the policy compared to permanent life insurance policies. But this insurance policy has to be renewed or converted into a permanent policy should the policyholder wants to have the insurance policy renewed at the end of the term. For instance, of a 30-year term life insurance is made at age 30, the policy holder will be insured up to age 60. If the options of coverage extensions are available again, they may get to pay more after the term is over.
Permanent Life Insurance
Endowment plan gives benefit that is effective the life of policyholder, on condition that premiums are paid.This type of insurance is relatively costly than the others but it provides other attractions like cash value.The cash value part of the policy is like a bank account that earns interest and its growth is tax favored; it can be borrowed or surrender.
These are various types of permanent life insurance policies; they include whole life; universal life; and variable universal life.These options vary in how much flexibility is provided to the policyholder, as it can be changed as are the premiums or the face amount of death benefit.For instance, whole life brings fixed premiums and guaranteed death benefit on top of which universal life insurance brings more future freedom in charging premiums and cash value accumulation.
Factors That Affect Life Insurance Premiums
There are various factors that lead to formulation of the actual price of the life insurance premiums. The most important among them are age, gender, health status and practice health related behaviours. Inexperienced drivers are known to pay a smaller amount of premium because statistically they are not very likely to die before the maturity of the policy. Likewise, women are likely to be charged less than men because they are expected to live longer than men.
Health is one other essential consideration. People with no chronic illnesses and people who don’t smoke and exercise, can all get lower premiums. On the other hand, the Mais investigate omissions or deficiencies of specific information, insofar as people are more likely to incur greater costs when participating in dangerous hobbies, such as adventure sports, or who suffer from a medical condition.
Buying Guide: How to Choose the Right Policy
Hence, every person has to assess the circumstances before investing in life insurance policies. Here’s a step-by-step guide to help you choose the best policy for your needs:
1. Assess your financial needs: They should work out any expenses your family incurs regularly as well as in the future.This is in the form of house and other loans, college fees for children among other costs that your dear ones would incur upon your demise.
2. Research and compare: There are several types of life policies and vary in features and affordability for the customer.You need to check the internet for quotes to find an insurance policy suitable for your monetary capacity.
3. Consider long-term goals: Are there particular time periods for which you require an insurance policy or would you like the policy to endure as long as you live with added savings’ features?Reflect for a moment about how your needs might evolve in time.
Conclusion
The financial product known as life insurance plays an important role because it helps to provide for your family in your absence. Whether choosing term life insurance to meet specific needs for a certain number of years, or choosing permanent insurance to provide lifelong coverage it is necessary to select a policy that will meet the goal. By the same token, you can provide your dear ones with the needed insurance, giving them confidence and money in equal shares for many years.
