Life insurance is basically a legal contract between an insurer and an insurance covered individual, in which the insurer promises to cover a designated insured person a specified amount of money upon the insured individual’s death. Depending on the agreement, other unforeseen events like critical illness or terminal illness may also trigger coverage payments. However, not all insurance companies offer life insurance, so it is important to do some research before deciding on which insurance company to choose.
In a life insurance policy, the insured pays premiums that are used to purchase a death benefit and an additional amount called the “premium” per annum. The death benefit is equal to the total of the premiums paid multiplied by the current total number of years the insured has lived. The premiums may be paid annually, semi-annually, quarterly, or monthly. The premium is applied to the cost of living expenses, depending on the stated benefit. Once the term of the policy expires, the remaining death benefit is paid to the beneficiary.
Beneficiaries can be people or companies. Insurance companies or agents provide financial protection for named individuals, including their dependents, who are beneficiaries under life insurance policies. This kind of protection is useful when one wishes to leave a family or loved ones behind and ensure that they have enough funds to live on after one’s passing. By providing financial security, life insurance policies also help alleviate economic distress caused by unemployment, loss of a job, or reduced earning capacity or other unavoidable circumstances.
Mortgage protection insurance, or “mortgage insurance” is another common form of life insurance. Mortgage protection insurance (also known as mortgage loan insurance or mortgage reimbursement insurance) is a type of insurance that pays a lump sum to the beneficiary in the event of the policyholder’s death. Although death is the most common cause of death, policyholders can also have their incomes reduced or eliminated if they suffer from a medical condition, become unemployed, or lose their jobs due to company downsizing. In general, mortgage insurance helps alleviate the stress of going through life with no extra income from working. Unlike life insurance policies that pay a regular amount upon death, mortgage protection insurance pays a lump sum amount upon the policyholder’s demise.
Whole life insurance and universal life insurance are two of the more popular varieties of life insurance. Whole life insurance is usually less costly than other forms of insurance, because it provides a cash payout once the insured individual passes away. Universal life insurance, on the other hand, pays a fixed rate, regardless of how long the insured individual lives. The insurance company makes money in the long run by collecting premiums from the insured for the rest of the insured’s life. Both whole life insurance and universal life insurance provide financial protection for a specified period of time, and both also build cash value. Whole life insurance pays a cash value amount, while universal life insurance builds cash value over the years.
One of the most effective ways of providing financial protection is through life insurance, as it is the most reliable way of building a savings foundation for the future. In addition, it is the only policy that offers full cash value, which allows policyholders to take advantage of investment-oriented policies that offer higher returns. It is important to note, however, that policies with higher returns should be used to supplement existing savings or as a substitute for Social Security or other guaranteed income sources.