What is Life insurance?
Life insurance is a contract between an insurance policy holder and an insurer or assures, where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of an insured person. Depending on the contract, other events such as terminal Illness or critical illness can also trigger payment. The policy holder typically pays a premium, either regularly or as one lump sum. Other expenses, such as funeral expenses, can also be included in the benefits.
How it works
With permanent life insurance you can transfer a death benefit to your beneficiaries free from federal income taxes. Some plans also allow you to build equity, or cash value, on a tax-deferred basis. This type of life insurance is best suited for individuals or business owners with long-term life insurance needs.
How much you need
The amount you need really depends on your financial goals. No two individuals’ life insurance needs are the same. Your financial advisor will look at your entire financial picture to help you calculate the right amount for your situation. Factors could include: What you’ve already saved, what you’re trying to save and what you want to leave behind.
Over time your needs and goals will change. Even if you have coverage in place today, it’s important to review it with your financial advisor periodically, particularly after the addition of a child, change in marital status, a change in home ownership or when changing jobs if your policy was provided through your employer.
What you can expect to pay
Because of the lifetime benefits it provides, permanent insurance can be three to five times higher, on average, than a term policy. The primary reason for this is that unlike term life insurance, which only covers you for a set period of time, with permanent insurance you have coverage for as long as you pay your premiums. The amount you pay can be based on your age, gender, health and the type and amount of coverage you choose. Permanent insurance premiums are generally level, and expenses of the policy are typically balanced out after 20 years.
Types of Life Insurance
There are four major types of life insurance policies. These life insurance types are
- Whole Life Insurance,
- Term Life Insurance,
- Universal Life Insurance,
- Variable Universal Life Insurance.
What does term insurance mean?
Term insurance is a type of life insurance policy that provides coverage for a certain period of time or a specified “term” of years. If the insured dies during the time period specified in the policy and the policy is active, or in force, a death benefit will be paid.
