Life Insurance
What is Life Insurance?
Life insurance is a contract between an individual (the policyholder) and an insurance company, where the insurer agrees to pay a designated beneficiary a sum of money upon the death of the insured person. This payment, known as the death benefit, can help cover funeral costs, pay off debts, provide income replacement, and more.
Types of Life Insurance
Term Life Insurance:
> Duration: Provides coverage for a specific period (e.g., 10, 20, 30 years).
> Cost: Typically lower premiums compared to permanent life insurance.
> Payout: Pays a death benefit only if the insured dies within the term.
> Renewability: Can often be renewed or converted to permanent life insurance.
Whole Life Insurance:
> Duration: Provides lifetime coverage.
> Cost: Higher premiums than term life insurance.
> Cash Value: Builds cash value over time, which can be borrowed against or withdrawn.
> Payout: Guaranteed death benefit as long as premiums are paid.
Universal Life Insurance:
> Flexibility: Allows adjustments to the premium and death benefit.
> Cash Value: Accumulates cash value with interest, which can be used to pay premiums.
> Duration: Lifetime coverage.
Variable Life Insurance:
> Investment Options: Allows policyholders to invest the cash value in various investment options.
> Risk and Reward: Potential for higher returns but also higher risk.
> Duration: Lifetime coverage.
Indexed Universal Life Insurance:
> Interest Rates: Cash value growth is linked to a stock market index.
> Flexibility: Adjustable premiums and death benefit.
> Duration: Lifetime coverage.
Final Expense Insurance:
> Purpose: Designed to cover funeral and burial expenses.
> Cost: Lower death benefit and premiums.
> Simplified Underwriting: Often easier to qualify for, with minimal medical requirements.
Key Components of Life Insurance Policies
Premiums:
> The amount paid periodically (monthly, quarterly, or annually) to keep the policy active.
Death Benefit:
> The amount paid to the beneficiaries upon the insured’s death.
Cash Value:
> A savings component in permanent life insurance that grows over time.
Beneficiary:
> The person or entity designated to receive the death benefit.
Policy Term:
> The length of time the policy is in effect (for term life insurance).
Underwriting:
> The process insurers use to evaluate the risk of insuring an individual.
Benefits of Life Insurance
Financial Security: Provides financial support to loved ones after the insured’s death.
Debt Coverage: Helps pay off debts and financial obligations.
Income Replacement: Replaces lost income for dependents.
Estate Planning: Can be used to manage estate taxes and provide an inheritance.
Business Protection: Ensures business continuity in case of the owner’s or key employee’s death.
