Life Insurance: Basics and Types
Life insurance is a type of financial security that guarantees monetary protection to the insured and his family according to the terms and conditions of the policy. It is important that every individual should have a life insurance policy according to his budget because no one knows when an accident can happen.
What is Life Insurance?
People have various wrong conceptions about life insurance. They feel that life insurance is needed during the latter years of one’s life. Life insurance is actually an agreement between the insured and the insurer in which the policy holder accepts to pay regular premium to the insurer. In return, the insurer guarantees monetary protection to the insured in case of any accident or mishaps. If the insured dies in accident, financial help is provided to his family members. Thus, life insurance is necessary as it provides protection to not only you but also to your family in case of any unwanted disaster.
Types of Life Insurance:
There are various types of policies and schemes prepared to suit the need of different individual. You can avail the one that satisfy your budget and need. Life insurance can be broadly divided into 3 types:
- Term life insurance
- Whole life insurance
- Universal life insurance
What is Term Life Insurance?
In this type of life insurance, financial coverage is provided for a certain period of time according to the terms of the policy. When the term period gets over, the policy holder can either end the policy or continue it by paying annual premiums.
Term life insurance does not provide permanent coverage but is good for those who want temporary protection on a limited budget. If you are thinking of availing a short term life insurance policy to pay off loans, term life insurance policy is the right option for you. It can be renewed according to the policy holders wish and need.
What is Whole Life Insurance?
In this type of life insurance, the insured is provided with permanent financial protection. It is a long term insurance plan where the policy holder needs to pay premiums annually. There are various types of whole life insurance that individuals can avail in accordance to their needs such as Non-participating, Participating, Indeterminate premium, Economic, Limited Pay, Single Premium and Interest sensitive. But all life insurance companies may not offer all the types of whole insurance policies stated above.
What is Universal Life Insurance?
This is a permanent life insurance plan which has flexible terms. It allows some of the benefits such as death benefits, saving benefits to be reviewed and changed according to the policy holder�s need. In this policy, the insured enjoys not only benefits of term life insurance but also cash value (premiums that are above the cost insurance are credited as cash value). You can choose from the 3 types of universal life insurances, i.e. Single premium, fixed premium and flexible premium, in accordance to your requirement.
Single premium universal life insurance: In single premium universal life insurance, the policy holder pays a big premium amount at the beginning of the policy. The policy remains active as long as the cost of insurance (COI) is covered by the initially paid amount.
Fixed premium universal life insurance: In fixed premium universal life insurance, the policy holder makes monthly or yearly payments of fixed amount for a certain period of time.
Flexible premium universal life insurance: In this option of universal life insurance, the policy holder can pay monthly premiums of his choice as long as the minimum payment amount is covered.
Life insurance is therefore an essential step towards safeguarding the future of your family. People should understand how these life insurance policies work and avail the one that seems suitable to their needs. Take the help of a good insurance agent who will help you with details of the policies available.
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