What Actually Is Life Insurance?
If you are new to buying life insurance, this will be an excellent overview to learn how it works and what you need to understand when choosing your coverage.
A life insurance policy is a contract you make with an insurance company. Throughout your life, you exchange premium payments, and in exchange, the insurance company provides your beneficiaries with a lump-sum amount upon your death. Your life insurance coverage can be adapted to your needs and goals. There are many varieties of life insurance, but this will give you an overview of some of the most common types.
Term Life Insurance.
Term life insurance generally provides protection for a specific period designated in your coverage agreement. For example, it could be ten years or even 20 years. With traditional term insurance, the premium amount you pay every month stays the same for the specific coverage period you select. However, when your time elapses, your policy may allow you to continue coverage, but it’s typically at a higher premium payment rate. Term life insurance is generally less expensive than permanent life insurance and can help meet the following needs:
• Replace lost income
• Provide a safety net for your loved ones
• Keep your family’s financial goals on track
• Pay off a mortgage
• Keep a business running
• Pay off college
As well as a variety of other vital needs depending on your goals and lifestyle. However, regardless of your situation, term life insurance benefits are paid one time in a lump sum.
Permanent Life Insurance.
Permanent life insurance, such as whole and universal life, provide lifetime coverage.
Universal life insurance provides flexible policies, unlike whole life insurance. Your policy may allow you to alter your premium payment or coverage amounts by raising or lowering it throughout your lifetime. However, universal life insurance policies typically have a higher premium payment than term because it’s lifetime coverage.
Universal life insurance is commonly used when you are crafting a flexible estate planning strategy to help preserve your wealth in order to pass it on to your loved ones. This type of life insurance is also used to cover long term income replacement, and some policies even provide death benefit coverage and the ability to build cash value.
Whole life insurance also provides lifetime coverage with a higher premium payment than term life insurance as well as Universal Life. The premium payments are traditionally fixed payment, and they also have a cash value. Whole life insurance also provides you with a savings component and may be tax-deferred over time. Whole life insurance can also assist as an estate planning tool to help you preserve your wealth to pass on to your loved ones.
Whatever life insurance option you choose, your rate class is determined by a variety of factors such as your health, medical history, and your lifestyle.