Life Insurance Is A Contract
Life insurance is a contract you purchase to provide someone you love with a cash benefit when you die. By purchasing a life insurance policy, you make an agreement to make monthly, semi-annual or annual payments, called premiums, and the life insurance company agrees to pay out a lump sum to your beneficiary upon proof of death.
Reasons To Have Life Insurance
Life insurance is helpful in a number of situations. The money can help cover business loans or mortgages. The money also provides your family with a steady stream of income to prevent them from having to move or file bankruptcy once your income is lost.
Companies often take out life insurance policies against their executives. By naming themselves beneficiary on the policy, the company gains money to keep the business solvent until shareholders nominate a new president or CEO. It also provides necessary income to cover fees for selling the business if it came to that.
Types Of Life Insurance
Life insurance breaks down into two categories:
- Investment: Earns interest (more expensive)
- Protection: Lower payments, death benefit paid out if you die before the term ends
Examples of investment life insurance policies are whole life. Your premiums build up a cash amount over time and you earn interest on the money you’ve paid. Whole life insurance is more expensive, but excellent ways to save money over time because your premium never increases, even as you age.
Universal life insurance coverage includes an account that increases each time you pay a premium. If the cash value rises high enough, the need for premium payments is unnecessary. It’s another example of investment life insurance policies.
Limited-pay life insurance is an investment type. You make regular payments for a set period of time and then do not have to pay any thing more. The death benefit is paid out when proof of your death is submitted.
Endowment insurance is the most expensive investment life insurance policy. You make large payments within a specific time frame to reach the death benefit. If you haven’t died by a specific age, you receive the money or can roll it into a new life insurance policy.
Term life insurance is one of the best-selling protection life insurance policies. You may low monthly payments that benefit the company’s finances. However, when you die, they must pay your beneficiary the value of the life insurance policy. Most term life policies last twenty years. If you don’t die before the policy ends, you must renew it. Because you are older, your life insurance premium will be higher. Most term insurance policies place limits on paying a death benefit if you commit suicide within two years of enrolling.