What is life insurance?
Life insurance is a contract between an insurer and an insured. A life insurance policy ensures that the insurer pays sum of money to designated beneficiaries upon the death of the insured in exchange for premiums paid by the policyholder
during the life of the insurer.
1) Life insurance is a legally binding contract.
2) For the contract to be enforceable, the
application for life insurance must accurately reveal the insured's past and
current health conditions and high-risk activities.
3) For a life insurance policy to remain in effect, the insured must pay a one-time premium
in advance or pay regular premiums over time.
4) When the insured dies, the designated beneficiaries of the policy will receive the face
value of the policy or death benefit.
5) Term life insurance policies expire after a number of years.
6) Permanent life insurance policies remain active until the insured dies, stops paying
premiums or discovers the policy.
7) A life insurance policy is as good as the financial soundness of the issuing company. Government guarantee
funds can pay claims if the issuer is unable to do so.
Who should buy life insurance?
Life insurance provides financial support to survivors or other beneficiaries after the death of an insured person. Here are some examples of people who may need
Parents with minor children — If one of the parents dies, loss of income or childcare skills could create financial
difficulties. Life insurance can ensure that children have the financial resources they need until they can support themselves.
Parents with adult children with special needs — For children who need lifelong care and who will never be self-sufficient, life insurance can ensure that their needs are met after the death of their parents. The death benefit can be used to finance a special needs trust that a trustee will administer for the benefit of the adult child.
1Adults who own property together — Married or not, that the death of one adult would mean that the other could no longer pay loan payments, maintenance and taxes on the property, life insurance may be a good idea. An example would be a hired couple who took a joint mortgage to buy their first home.
Elderly parents who want to leave money to adult children who provide their care — Many adult children sacrifice themselves by taking leave from work to care for an elderly parent who needs help. This assistance may also include direct financial support. Life insurance can help reimburse the adult child's expenses upon the death of the parent.
Young adults whose parents have contracted private student loan debts or co-signed a loan for them — Young adults without dependants rarely need life insurance, but if one of the parents is on a child's debt hook after death, the child may want to take out enough life insurance to pay off the child's debt. debt.
Young adults wishing to set low rates — The younger and healthy you are, the lower your insurance premiums.
A 20-year-old adult could purchase a policy even without having dependants if there is a expectation of having it in the future.
Rich Families waiting to pay inheritance tax — Life insurance can provide funds to cover taxes and keep the total value of the inheritance intact. Families who cannot afford burial and funeral expenses: A small life insurance policy can provide funds to hon our the death of a loved one.
Companies with Key Employees: If the death of a key employee, such as a CEO, creates serious financial hardship for
a business, that company may have an insurable interest that will allow you to purchase a life insurance policy for that employee.
Married Pensioners — Rather than choosing between a pension payment offering a spousal benefit and another that does not, pensioners can choose to accept their full pension and use part of the money to purchase life insurance for their spouse. This strategy is called the maximization of pensions. How Life Insurance Works
A life insurance policy can have two main components: a death benefit and a premium. Term life insurance has both components, but permanent or comprehensive life insurance policies also have a cash value component. Types of
life insurance Many types of life insurance are available to meet all kinds of needs and preferences.
Term Life —Term life insurance lasts a number of years and ends. You choose the term when you take the font. The common terms are 10, 20 or 30 years. The best term life insurance policies balance affordability and long-term financial soundness.
Level Duration — Premiums are the same each year. Increase duration: Premiums are lower when you are younger and increase as you get older. This is also known as the “annual renewable term”.
Permanent — This remains in effect throughout the life of the insured unless the insured ceases to pay premiums or waives the policy. Usually it is more expensive than the term. Single premium: In this case, the policyholder pays the full premium in advance instead of making monthly, quarterly or annual payments.
All Life —Whole life insurance is a type of permanent life insurance that accumulates cash value.
Universal Life — A type of permanent life insurance with a cash value component of interest, universal life insurance has premiums comparable to those of term life insurance. Unlike a fixed and lifetime period, premiums and death benefits
can be adjusted over time.
Universal Guarantee — This is a type of universal life insurance that does not generate cash value and whose premiums are normally lower than life premiums.
Universal Variable — With variable universal life insurance, the insured can reverse the
value of the policy.
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