Everything You Need To Know About The Basics of Life Insurance
Typically consumers take out life insurance in order to protect themselves from events that may possibly occur, such as illness, car accidents, fire and other things. The likelihood of such things happening is one of the factors that is considered in order to set rates. However, life insurance is very different.
Life insurance differs because you are not insuring against something you expect to never happen. You know you will die, it is just a matter of when. This makes pricing life insurance more difficult than other types of insurance. Life insurance is much more a financial product than a true insurance product. Such things can lead to confusion and make it easy for people to be fooled more often.
Purchasing life insurance allows you to solidify the financial future of those you love and your legacy can be composed of it. The benefits from life insurance can cover funeral costs, college funds, mortgages or more.
Below are some definitions from the world of life insurance:
- Life Insurance Premiums: This is the amount of money you pay an in order to have life insurance.
- Life Insurance Convertibility: This is what makes a policy able to convert from one type to another.
- Life Insurance Face Value: This is the original amount of the benefit on a policy.
- Life Insurance Cash Value: This is the saving part of a policy that can be cashed in or borrowed from.
- Paid Up Life Insurance : This is a type of policy that has no outstanding premiums due.
- Life Insurance Beneficiary: The person who will receive benefits from a life insurance policy.
Life Insurance Options
There are 6 different types of life insurance options.
- Term life insurance: This type of coverage is often referred to as temporary and is the easiest to get and the least expensive. It covers the individual for a set number of years for a premium that is stable.
- Declining Balance Term: This is a different form of term insurance that is commonly matched with mortgages. The benefit decreases over the life of the term, which is typically equal to the length of the mortgage. When the mortgage is paid off, the policy is useless and will expire. It has no cash value.
- Whole Life: This policy gives you permanent life insurance with savings built in. If you continue to pay your coverage at the locked in rate, you will be accruing cash value.
- Universal Life: This is similar to whole life but you can also earn on the savings associated with your policy. Premiums and face values are more flexible than other types of coverage and can be altered as needed. Cash values can be accessed.
- Variable Life: This type has fixed premiums and gives the holder more control over the cash value of the policy. This cash value is invested therefore it and the death benefits associated with the plan can vary. Taxes are deferred on capital gains and other earnings if the money remains in the insurance policy.
- Universal Variable Life: This is an aggressive policy that is invested in mutual funds. No guarantees are made other than the original face value death benefit.
Understand the different types of life insurance so that you can be sure you are getting the right life insurance policy for your needs before you buy.
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