Many people have purchased some kinds of life insurance policy, but it is probably something that they don’t often brag about. They could show others if they have purchased a new car, but life insurance is something more private and it could protect the whole family against the untimely death of the primary breadwinner. There are different types of life insurance, but there are two more important ones, permanent and term life insurance. When we choose the term insurance, we will be required to pay specific amount of money or called premium in the insurance industry. Term life insurance could last between one to thirty years depending on our unique requirements. During the period, the insurance company is required to pay the insured a specific amount of money if he or she dies. The payment is called the death benefit and it is intended to provide the deceased’s family some financial backup. However, if the person doesn’t die during the period, the insurance provider keeps that money and considers it as their profits.
There are variants of term life insurance policies, such as “return of premium” term life insurance. In this case, the insurance provider returns a portion or all of the premiums when the period ends. They need to sign new contract if they want to extend the policy. Insurance companies would try to keep themselves solvent by ensuring that what the pay as claims is less than we they get from premiums. A more comprehensive form is permanent life insurance and it offers protection until the death of the insured. Also, unlike term insurance policy, it has a cash value that contains savings sidecar. While premiums are paid for the policy protection, a portion of it is used for the savings sidecar. Again, there are different variants of permanent life insurance. Whole life insurance has a savings component that is transferred to the general fund, so it can grow and earns interest. The proportion of our money inside the savings account depends on how much we have paid to the insurance provider.
Another type is known as the universal life insurance and as opposed to Whole Life Insurance the savings sidecar is placed in a separate account. Universal life insurance is known for its flexibility. As an example, consumers could pay heavily for 9 months when they are making more money, but they don’t have to pay for the remaining 3 months. This could be useful for families who live in northern areas and need to stop working during the winter, due to the outdoor nature of their occupation. When we choose Universal Life insurance, the money could be allocated to 10-year bonds, so it is easy for to keep it on track. Variable Life Insurance is another variant and when we choose it; our money will be allocated to the insurance subaccounts. These subaccounts could work like mutual funds and this should be useful for families who also want to invest their money for future gains.
