Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of an insured person. Life insurance dates back all the way to the Roman Empire but didn’t come into play in the United States till the Presbyterian Synods in Philadelphia and New York City created the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759.
As you can imagine the best time to get life insurance is when you get married that way if you pass before your loved ones, you know that they will be taken care of. Life insurance policies all fall under two classes of policies. Protection and investment policies.
Protection policies are designed to provide a benefit, typically a lump sum payment, in the event of specified event. A common form of a protection policy is term insurance.
Investment policies main objective is to facilitate the growth of capital through payment of premiums. Common forms (in the U.S.) are whole life, universal life, and variable life policies.
Term insurance provides life insurance coverage for a specified term. The policy does not accumulate cash value. Term insurance is significantly less expensive than an equivalent permanent policy but will become higher with age. Policy holders must pay more to provide for increased term premiums or decrease The amount of the policy to keep premiums consistent.
Mortgage life insurance insures a loan secured by real property and usually features a level premium amount for a declining policy face value because what is insured is the outstanding principal on a mortgage that is constantly being reduced by mortgage payments.
Group life insurance is term insurance covering a group of people, usually employees of a company, members of a union or association, or members of a pension or superannuation fund. Group life insurance often allows members exiting the group to maintain their coverage by buying individual coverage. The underwriting is carried out for the whole group instead of individuals.
Permanent life insurance is life insurance that covers the remaining lifetime of the insured. A permanent insurance policy accumulates a cash value up to its date of maturation. The owner can access the money in the cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value. The three basic types of permanent insurance are whole life, universal life, and endowment.
Whole life insurance, sometimes called "straight life" or "ordinary life" provides lifetime coverage for a fixed premium over the life of the policy. Whole life insurance belongs to the cash value category of life insurance, which also includes universal life, variable life, and endowment policies.
Universal life insurance is a relatively new insurance product, intended to combine permanent insurance coverage with greater flexibility in premium payments, along with the potential for greater growth of cash values. There are several types of universal life insurance policies, including interest-sensitive, variable universal life, guaranteed death benefit, and equity-indexed universal life insurance. Universal life insurance policies have cash values. Paid-in premiums increase their cash values; administrative and other costs reduce their cash values.
Endowments are policies which will pay a lump sum at either the death of the insured or after a set term, called the policy's maturity. Endowments require higher premiums than whole life and universal life policies because of the additional lump sum benefit at the maturity of the policy.
A money back policy is a variant of the endowment plan. It gives periodic payments over the policy term. To that end, a portion of the sum assured is paid out at regular intervals. If the policy holder survives the term, he gets the balance sum assured. In case of death over the policy term, the beneficiary gets the full sum assured.
Accidental death insurance is a type of limited life insurance that is designed to cover the insured should they die as the result of an accident. "Accidents" run the gamut from abrasions to catastrophes but normally do not include deaths resulting from non-accident-related health problems or suicide. Because they only cover accidents, these policies are much less expensive than other life insurance policies.
You should always work with an experienced life insurance representative when selecting a policy to ensure it meets your objectives and needs.