Life Insurance Policies Explained

Life Insurance Policies Explained

Life Insurance Policies Explained, Regardless of how fancy the policy title or sales presentation might appear, all life insurance policies contain benefits derived from one or more of the three basic kinds shown below. Some policies should combine more than one kind of life insurance which can be confusing.

Term Life Insurance

Endowment Life Insurance

Whole Life Insurance

Variable Life Insurance

Universal Life Insurance

Variable Universal Life Insurance

Term Life Insurance

Term life insurance is death protection for a term of one or more years. Some companies are offering policies with terms up to thirty years. Premiums on term insurance remain level during the life of the policy. Term Life Insurance has no cash value account. Death benefits will be paid only if you die within that term of years. Term insurance generally provides the largest immediate death protection for your premium dollar.

Some term life insurance policies are renewable for one or more additional terms even if your health has changed. Each time you renew the policy for a new term, premiums will be higher. You should check the premiums at older ages and the length of time the policy can be continued.

Life Insurance Policies Explained
Life Insurance Policies Explained

Some term insurance policies are also convertible. This means that before the end of the conversion period, you may trade the term policy for a whole life or endowment insurance policy even if you are not in good health. Premiums for the new policy will be higher than you have been paying for the term insurance.

Life Insurance “Endowment”

Life Insurance Policies Explained, An endowment insurance policy pays a sum or income to you, the policyholder if you live to a certain age. If you were to die before then, the death benefit would be paid to your beneficiary. Premiums and cash values ​​for endowment insurance are higher than for the same amount of whole life insurance. Thus endowment insurance gives you the least amount of death protection for your premium dollar.

Whole Life Insurance

Life Insurance Policies Explained, Whole life insurance gives death protection for as long as you live. The most common type is called straight life or ordinary life insurance, for which you pay the same premiums for as long as you live. These premiums can be several times higher than you would pay initially for the same amount of term insurance. But they are smaller than the premiums you would eventually pay if you were to keep renewing a term insurance policy until your later years.

Some whole life policies let you pay premiums for a shorter period such as 20 years, or until age 65. Premiums for these policies are higher than for ordinary life insurance because the premium payments are squeezed into a shorter period.

Life Insurance Basics

Life Insurance Policies Explained, Although you pay higher premiums, to begin with, for whole life insurance than for term insurance, whole life insurance policies develop cash values ​​that you may have if you stop paying premiums. You can generally either take the cash or use it to buy some continuing insurance protection. Technically speaking, these values ​​are called nonforfeiture benefits. This refers to benefits you do not lose or forfeit when you stop paying premiums. The amount of these benefits depends on the kind of policy you have, its size, and how long you have owned it.

A policy with cash values ​​may also be used as collateral for a loan. If you borrow from a life insurance company, the interest rate is shown in your policy. Any money you owe on a loan policy would be deducted from the benefits if you were to die, or from the cash value if you were to stop paying premiums.

Variable Life Insurance

Life Insurance Policies Explained, Variable life insurance provides permanent protection for you and death benefits to your beneficiary upon your death. The value of the death benefits may fluctuate up or down depending on the performance of the investment portion of the policy. Most variable life insurance policies guarantee that the death benefit will not fall below a specified minimum, however, a minimum cash value is seldom guaranteed.

Variable is a form of whole life insurance and because of investment risks, it is also considered a securities contract and is regulated as securities under the Federal Securities Laws and must be sold with a prospectus.

Universal Life Insurance

Life Insurance Policies Explained, Universal Life insurance is a variation of Whole Life. The insurance part of the policy is separated from the investment portion of the policy. The investment portion is invested in bonds and mortgages, and the investment portion of Universal Life is invested in money market funds. The cash value portion of the policy is set up as an accumulation fund. Investment income is credited to the accumulation fund. The death benefit portion is paid for out of the accumulation fund.

Unlike Whole Life Insurance, the cash value of Universal Life Insurance grows at a variable rate. Normally, there is a guaranteed minimum interest rate applied to the policy. No matter how badly the investments go by the insurance company, you are guaranteed a certain minimum return on the cash portion. If the insurance company does well with its investments, the interest return on the cash portion will increase.

Variable-universal life

Variable universal life insurance pays your beneficiary death benefit. The amount of compensation depends on the success of your investment. If the investment fails, there is a guaranteed minimum death benefit paid to your beneficiary on your death.

The universal variable gives you more control over the part of the account with the monetary value of your policy than any other type of insurance. A form of comprehensive life insurance, it has elements of both life insurance and a securities contract. Because the policyholder assumes investment risks, variable universal products are regulated as securities under the Federal Securities Act and must be sold with a prospectus.

Life Insurance Policies Explained, Prices and coverage vary from country to country. Shop for yourself and talk to an independent insurance agent to make sure you get a plan that’s right for you. It’s amazing how many rates can vary from company to company for the same coverage.

Author: Mribadol

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