Life Insurance Policies
Life Insurance protects a family from a financial disaster should the primary income earner die. It is also an element of a family’s financial planning and life insurance is one of the essential parts of the financial planning process. The information we provide you is basic knowledge of life insurance which will introduce you to what life insurance is about and give you an idea of how life insurance works.
As in its name life insurance basically explains itself as it insures the life of a person should they die and pay a predetermined amount to another. While most people have a basic understanding of life insurance there are different types of life insurance. While the person who is insured has the coverage a person called the beneficiary receives financial compensation if the insured should die there is more to the process. Life insurance is pretty straightforward in that when the insured person dies the policy pays a prearranged amount to the designated beneficiary.
The following are the parties in a life insurance policy:
- The Insured - Is the person whose life is insured on the policy.
- The Beneficiary - Is the person who is compensated should the insured die.
- The Owner. Is the company or person responsible for payment of premiums. It is typically the insured, but it could be a company or the beneficiary.
- The Insurer. Is the insurance company that issues the life insurance policy who promises to make payment.
Life insurance is a great tool Because of its many options and overall flexibility. Life insurance can be a great financial planning tool. Considering that life insurance can be used to pay for things like funeral costs, college tuition, debts, and more. It can also serve as an income vehicle providing your family with income and a greater sense of financial freedom.
Types of life insurance
An important thing to remember is that there are several types of life insurance products but one thing to consider is to select the right one for you and your family while satisfying your financial needs.
The two basic types of life insurance are term life insurance and permanent life insurance. This is a breakdown of the basic types of life insurance policies:
Term life insurance it is usually the cheapest type of life insurance. Term life insurance is designed to provide coverage for a fixed period of time that is usually from one (1) year to twenty (20) years. The premium for the term policy is guaranteed for the duration of the term and if it is a renewable term policy the premium will increase with each renewal. Because term life policy is for a specific period of time and the payout does not increase, the overall cost of term life insurance is usually very low.
Whole life insurance policies are designed to provide you and your family with coverage from date of coverage until date of death. Whole life insurance is sometimes referred to as a cash builder insurance policy, because it builds cash value over the life of the policy. Whole life coverage is both an investment vehicle and a life insurance policy. The investment portion invests the premiums you pay and earns interest while accumulating cash value. While the insurance policy has a stated insurance coverage amount that is paid upon the death of the insured.
Universal life insurance is another very popular option that is similar to whole life insurance. It is a guaranteed renewable policy with an investment portion and death benefits that can be renewed and changed based upon the policy holder’s needs. The policy owner has flexibility with the policy in that money can be moved between the insurance portion and investment portion of the policy. The premiums can be paid out of interest that is accumulated from the investment savings portion.
Variable life insurance policies are one of the most popular types of permanent life insurance. Variable life insurance policies allow you to invest your premiums while tied to the stock market. While a variable policy may offer more significant returns they are also at the risk of the stock markets performance. In a poor performing stock market the overall death benefit and cash value of the life insurance policy may decline, but never below a minimum coverage amount. As a result the policy can have more expensive premiums, because you may have to pay more to keep the policy in force and active due to less money being available to cover the premiums.
Make sure you compare life insurance quotes from different insurance providers to make sure you get the best rate, but also make sure you get the best coverage for the price.