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What Is Life Insurance and How Does It Work?

What Is Life Insurance and How Does It Work?

Life Insurance

Life insurance is considered as an investment as well as protection for your family. Life is uncertain and anything could happen to anyone so insurance provides protection and is regarded as one of the main financial planning tools. So, it is good to ensure and be risk-free. The premium payable depends upon insurance life, amount, age, etc. The premium payable is very reasonable as anyone can get insured.

Suppose an earning member of a family who has debt in his name dies suddenly then it becomes difficult for the family to survive as well as pay the outstanding debt.  The family could suffer a lot. However, if the person was insured, the family would not suffer, as insurance would have helped them in their hour of need. 

In Life insurance , the insurance company pays the sum insured in the case of death of that person. The person insured pays a sum of money as premium for a definite period or until his death whichever is earlier. The person who gets insured should disclose all required information correctly as insurance is called a contract of good faith.

There are 2 categories of Life Insurance:

Term insurance: Under term life insurance a person pays premium monthly or yearly for a certain period. If the person dies within the period then the amount is paid to his beneficiary if not, he receives no money. The premium payable is less when you are young and increases as you age.

Permanent insurance: A person is insured throughout his life in permanent insurance. People who wish to insure themselves for the long term are benefited from this type of insurance. Premium should be paid regularly to avail death benefits. The amount of premium paid is high initially and becomes less as you age.

Life insurance is a protection tool that is also associated with the concept of savings and investment. Life insurance is a contract between an underwriter (you) and an insurance company. You agree to pay an insurance policy regularly and the insurer agrees to pay a sum of money to your designated beneficiaries if you die during the term of the contract. Premiums can be paid monthly, twice a year, or annually for the duration of the policy.

Like car insurance, life insurance can be extremely simple or complex. It depends on the choices you make by choosing from the types of policies available on the market and the options available to you. The term of this insurance can be as short as a year or as long as a life ...

How to buy a life insurance?

In the United States, there are three ways to buy life insurance: directly from an insurance company, through an independent local insurance agent or through a local insurance agent. independent online broker. Many people also buy life insurance through their company when it has agreements with certain companies or brokers. In 2016, there were nearly 800 insurance underwriters in the United States.

Which life insurance to choose?

The choice of life insurance is based on your personal situation, that is to say, according to your needs, your age, your wealth, your goals, etc. In the United States, there are five main types of life insurance policies.

The term life insurance policy covers the policyholder for a set number of years (from 1 to 30 years). Premiums are fixed and coverage is defined in advance. There is no concept of savings (or "cash value") as in the other insurances, and in this case, no remuneration on premiums paid. Term Life Insurance is "pure" insurance products. Whereas, premiums are generally lower than in other contracts. Attention, the amount of the premium is only fixed for the duration of the contract. If the policy expires and you want to renew it, you will pay a higher premium because you are older at the time of renewal and may be in poorer health.

Within this category of life insurance, there are three types of insurances: "Level Term" (premiums and "death benefits" are the same throughout the contract); "Annual Renewable Term" (same "death benefit" during the contract, but renewal of it every year with premium increases); "Decreasing Term" (the "death benefit" decreases each year and the premiums remain the same).

All other types of life insurance are covered by Permanent Life Insurance. As the name suggests, the policy is valid from the day you buy it until the day of your death. There are several types of Term Life Insurance.

The Whole Life insurance is the most classic that provides protection for the entire life. Premiums paid are fixed. It has a "cash value" component (some of the premiums are remunerated with a minimum rate guaranteed by the company), but the policy owner has no control over how the money is invested. Fiscally, interest earnings are not taxable during the term of the contract. The "payout" (amount paid at the end of the contract) is determined from the outset. This insurance guarantees that a fixed sum of money will be paid to the family upon the death of the insured.

Like the "Whole Life" insurance, the Universal Life insurance provides protection for the whole life and gains value over time thanks to its savings component ("cash value"). But conversely, it is flexible at the level of protection, premiums and "pay out", or rather "variable" given that you can vary the premiums.

The variable life insurance gives the subscriber control over how their savings are invested (stocks, bonds, mutual funds, etc.). The investment rate of return not only affects the cash surrender value of the policy but increases or decreases the amount of the final death benefit. With this policy, the premiums are fixed.

The "Universal Life Variable" insurance combines the flexibility of "Universal Life" and "Variable Life". It controls its investments, premiums are flexible, the amount of the final death benefit and the cash surrender value depend on the investment performance. Cash value is therefore not remunerated at a given rate, but according to investment choices on the financial markets. So you have control over your investments and compensation.