Perhaps a basic question, but an excellent place to start - once you begin with an understanding of what life insurance is and its applications, you can start to make choices about which type of policy best meets the needs of you and your family.
In simplest terms, life insurance provides coverage in the event of your death - ensuring that your family continues to have financial protection even when you are gone. The simplest perspective of life insurance is to look at the stage of your life and your financial means. Different types of insurance suit different life stages, needs, and financial abilities. The availability of various types of life insurance policies makes it easier to find one that is most applicable to your situation.
The primary function of life insurance is to provide financial protection to your family in the event of your death. Without life insurance, if you die, you are likely to leave your family with a financial burden as a result of your lost income. Beyond that, there are other functions of life insurance. Life Insurance Info examines both personal and business uses below; visit the Advanced Life Insurance Topics page for additional uses.
Your main objective for a life insurance policy is to provide a means for your family to meet financial obligations after your death. The following lists some of the major expenses as well as other personal uses for life insurance:
Similar to personal reasons, business owners can also use the proceeds of a life insurance policy to protect a business financially, including:
There are two major types of life insurance-term and whole life. Whole life is sometimes called permanent life insurance, and it encompasses several subcategories, including traditional whole life, universal life, variable life and variable universal life. In 2003, about 6.4 million individual life insurance policies bought were term and about 7.1 million were whole life.
Life insurance products for groups are different from life insurance sold to individuals. The information below focuses on life insurance sold to individuals.
There are several different types of term insurance you can consider:
Term Insurance is the simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from one to 30 years. Most term policies have no other benefit provisions.
There are two basic types of term life insurance policies-level term and decreasing term.
Level term means that the death benefit stays the same throughout the duration of the policy.
Decreasing term means that the death benefit drops, usually in one-year increments, over the course of the policy's term.
In 2003, virtually all (97 percent) of the term life insurance bought was level term.
There are four basic types of permanent insurance:
Whole life or permanent insurance pays a death benefit whenever you die-even if you live to 100! There are three major types of whole life or permanent life insurance-traditional whole life, universal life, and variable universal life, and there are variations within each type.
In the case of traditional whole life, both the death benefit and the premium are designed to stay the same (level) throughout the life of the policy. The cost per $1,000 of benefit increases as the insured person ages, and it obviously gets very high when the insured lives to 80 and beyond. The insurance company could charge a premium that increases each year, but that would make it very hard for most people to afford life insurance at advanced ages. So the company keeps the premium level by charging a premium that, in the early years, is higher than what's needed to pay claims, investing that money, and then using it to supplement the level premium to help pay the cost of life insurance for older people.
By law, when these "overpayments" reach a certain amount, they must be available to the policy owner as a cash value if he or she decides not to continue with the original plan. The cash value is an alternative, not an additional, benefit under the policy.
In the 1970s and 1980s, life insurance companies introduced two variations on the traditional whole life product-universal life insurance and variable universal life insurance.
It provides protection for a specified period of time, typically from one to 30 years. It pays a death benefit only if you die during this term. Some policies can be automatically renewed at the end of the coverage period, and some can be converted to permanent insurance without need for a medical exam.
There are several different types of term insurance you can consider:
It provides life-long protection as long as you continue to pay premiums. The premiums are based on your age at the time of purchase, and generally remain level. They do not increase as you age. Therefore, the younger you are when you buy the policy, the lower the premium you will pay for the life of the policy.
Because premiums remain level, permanent insurance is more expensive than term insurance. But permanent insurance accumulates cash value, which may be refundable upon surrender of the policy. While the policy is in force, cash values can be borrowed against or used to pay premiums.
The proceeds of many permanent life insurance policies can be used to ease the financial burden of catastrophic illness, terminal illness or long-term care. These accelerated benefits may be offered as part of the basic policy or as a rider to an existing policy.
With a permanent life insurance policy, you may borrow up to the cash value at an interest rate (fixed or adjustable) stated in the policy. Any unpaid interest is added to the loan. Any unpaid loan, including interest, will be deducted from the death benefit. The cash value can be used to pay premiums for a period of time, keeping the stated death benefit, or it can be used to purchase paid-up insurance in a lesser amount with no further premiums due.
There are four basic types of permanent insurance:
On all of the above policies, riders are available at an additional cost for the following coverages:
Disability waiver of premium: A feature added to some life insurance policies providing for the waiver of premium, and sometimes payment of monthly income if the policyholder becomes totally and permanently disabled.
Accidental death: A provision in a life insurance policy for payment of an additional benefit if death is caused by an accident. This is sometimes called double indemnity.
Final Expense Insurance is one of the greatest gifts you can provide for your loved ones. Providing your family with the money needed to cover your final expenses is something that simply makes sense.
Too many Americans find themselves without adequate financial resources. Sadly, most of them aren't even aware that a life insurance policy can cover these expenses obligations.
How final expense insurance can help: