Life insurance is an agreement between a provider of insurance and an owner of an annuity or insurance policy. The insurer promises to pay the beneficiary a cash sum upon the death of the insured. The contract may specify that beneficiaries may include spouses, children, and a select group of friends. Some contracts specify that the life insurance benefit only be paid upon death or a major life accident. A contract with such a provision is called “self-insurance”.
Most life insurance policies are purchased on a monthly or annual basis. There are also policies that provide protection for a set time period, such like a lifetime policy. These plans are typically more expensive per month but can pay more if the insured dies during the coverage period. Monthly and annual premium payments are determined by how much risk the insured is likely be. The level of risk is expressed as a percentage of the insured’s future income. If the insured is deemed to have a high level of risk, the premium will be higher.
To determine the amount of the premium, many life insurance companies calculate future earning potential and life expectancy by age and gender. To arrive at premiums, they apply the cost of living adjustments formula to these factors. The premium amount as well as death benefit income protection can vary depending upon the insured’s age and current health status at the time the policy is purchased. Many insurers allow individuals to purchase term life insurance policies. These policies pay out the death benefits in a lump amount and are generally more affordable than life insurance policies, which pay out a regular cash payout to beneficiaries.
Universal and term life insurance policies are popular because they provide financial protection to family members in the event that the policyholder dies. Universal policies pay the same benefits to dependents upon the policyholder’s death while term policies limit the number of years during which the beneficiary can receive the benefits. A twenty-year-old female policyholder would receive a death benefit of ten thousands dollars per year. If she was to live to see the policy’s expiration date, she would be entitled to an additional ten thousands dollars per year.
Many people who buy permanent insurance policies are interested to increase the amount that they will receive upon their death. Premiums are determined by the risk level of the insured. The monthly premium will increase if the insured is at greater risk. A combination of a term and universal life policy is best for most consumers. There are some things you should keep in mind when choosing between these two options.
Permanent policies pay out the death benefit only for the length of the policy (30 years) while term life insurance policies (also called “pure insurance”) allow the premium to be raised and settled over the course of a fixed period of time. Monthly premiums paid for both types of policies are relatively similar. Unlike universal life policies, which are indexed every year, premiums for term life insurance policies do not get indexed.
Whole-life policies usually offer the highest level of coverage. These policies provide coverage throughout the insured’s entire life. Coverage provided with universal life policies is often not as extensive. Premiums are paid even though the insured has never made a claim in their lifetime. The amount of the dependents’ death benefits is limited to whole life insurance coverage.
There are many types of coverage. Each has advantages and disadvantages depending upon an individual’s specific needs. Universal life insurance is a broad type of insurance that covers a variety life needs. Term policies only pay death benefits for a set period. Whole life insurance covers the insured for a fixed premium throughout their life.
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