A contract in which an insurance company promises to pay a sum of money to a designated beneficiary upon the death of the insured.
In other words, life insurance is a financial product that provides financial protection for loved ones in the event of the policyholder's death. The policyholder pays a premium to the insurance company, and in return, the company agrees to pay a death benefit to the beneficiary.
There are many different types of life insurance policies available, each with its own set of benefits and features. Some of the most common types of life insurance include:
- Term life insurance provides coverage for a specified period of time, such as 10, 20, or 30 years. If the policyholder dies during the term of the policy, the beneficiary will receive the death benefit.
- Whole life insurance is a type of permanent life insurance that provides coverage for the life of the policyholder. The policyholder pays premiums for the entire life of the policy, and the death benefit is typically paid out to the beneficiary upon the policyholder's death.
- Universal life insurance is another type of permanent life insurance that provides flexibility in terms of premiums and death benefits. The policyholder can adjust the premiums and death benefits as needed, subject to certain limits.
Life insurance can be a valuable financial tool for protecting loved ones. It can help to provide financial security for a family in the event of the policyholder's death, and it can help to pay for funeral expenses, debts, and other financial obligations.
The types of life insurance can be classified into two main categories: term life insurance and permanent life insurance.
- Term life insurance** is a type of life insurance that provides coverage for a specific period of time, such as 10, 20, or 30 years. If the insured person dies during the term of the policy, the beneficiaries will receive the death benefit. If the insured person survives the term of the policy, no benefits are paid.
- Permanent life insurance** is a type of life insurance that provides coverage for the life of the insured person. In addition to providing death benefits, permanent life insurance can also accumulate cash value over time. This cash value can be used to pay for premiums, provide income, or cover other expenses.
Specific types of life insurance
- Term life insurance
Level term life insurance is a type of term life insurance that has a fixed premium for the entire term of the policy.
Decreasing term life insurance is a type of term life insurance that has a decreasing premium for the entire term of the policy. The premium decreases as the insured person ages, reflecting the decreasing risk of death.
Return of premium (ROP) term life insurance is a type of term life insurance that refunds the premiums paid at the end of the term, if the insured person is still alive.
- Permanent life insurance
Universal life insurance is a type of permanent life insurance that allows the insured person to adjust the premium, death benefit, and cash value accumulation.
Variable life insurance is a type of permanent life insurance that allows the insured person to choose how the cash value is invested.
Insurance companies offer a variety of riders and endorsements that can be added to life insurance policies to provide additional benefits. For example, a waiver of premium rider will waive the premiums if the insured person becomes disabled. A guaranteed insurability rider will allow the insured person to purchase additional coverage at certain times in the future, even if their health has declined.
The best type of life insurance for you will depend on your individual needs and circumstances. It is important to compare different policies and riders before making a decision.