What is Life Insurance?
A means of spreading financial risk among a large number of people who pay into a fund or pool. In this way, the cost is minimized for those who suffer an unexpected misfortune.
A Life Insurance contract or policy is a legal agreement between you and an Insurance company that guarantees payment of the face value of the policy upon death.
Term policies provide Insurance coverage for a specified period (e.g. a fixed number of years or to a set age) then expire. A death benefit is paid only if you die during the term of the policy.
The premiums usually remain level during the specified term but increase if that term is renewed.
Most term policies are non-participating and do not include cash value or other non-forfeiture values. Hence premium costs are lower then for permanent policies, at least when you are younger.
Permanent Life Insurance:
Permanent Life Insurance has several variations; whole life, universal life and variable life. All are designed to provide Insurance protection for your entire life time, as long as you keep the policy in-force.
Basic Features of Permanent Policies
- Level premiums and Cash values
Variations of Permanent Insurance:
- Whole Life: this is the traditional policy that fully guarantees the level of premiums you pay, the death benefit and the growing cash values within the cash policy.
- Interest rate sensitive policies: the most popular and flexible of the interest-rate sensitive policies is Universal Life. It consists of two parts: Life Insurance and an investment account.