If you want to protect your family’s financial future, consider purchasing a life insurance policy. Still, you may be wondering, “What is life insurance coverage and how does health insurance work?” Let’s take a closer look to see why it is so important to have it.
Life insurance in simple terms
Life insurance can be confusing, so let’s start to understand it in simple words: it is a contract between an insured and the insurer. As part of the agreement, the policyholder pays the insurance premiums.
If the insured dies while the contract is active, the insurer will pay the death benefit. The beneficiary can use the death benefit for anything she wants, from paying for college expenses to buying a new home or vehicle. The death benefit can even cover living expenses so that the beneficiary can maintain the same lifestyle after the policyholder passes away.
What are the 4 types of existing life insurance?
The policies are divided into four categories and can be purchased in the following modes:
- Whole life insurance
- Universal life insurance
- Variable life insurance
- Final expense Term life insurance
Let’s take a closer look at each type of policy.
Whole, universal, & variable universal life insurance
Whole life, universal, and variable universal policies are categories of permanent life insurance. If you purchase one of these policies and pay your premiums, you will be covered until you die. In this way, the policy will pay your death compensation.
In addition to having a death benefit, permanent policies create a cash value that you can access. Every time you pay a premium, some of the money will go into a cash account. Depending on the policy, the cash will earn interest, or the insurer will invest it. You can borrow from the account or even use it to make premium payments.
Whole-life policies have fixed premiums, and the cash value is guaranteed to accumulate and grow at a specific rate. This aspect also applies to universal life insurance policies. Still, premiums are flexible and grow over time. Variable universal coverage also has flexible premiums and increasing costs. However, the cash value is invested and has no guaranteed rate of return.
Term life insurance
Term life insurance is not a permanent policy. Terms are generally 10, 20, 25 or 30 years. If you die while your insurance is active, the policy will pay the death benefit. However, if you are still alive after your policy expires, you will likely have the opportunity to convert it to a permanent policy. The term policy has a lower cost and allows for medium-term financial planning.
