insurance  insurance


 Life Insurance 

How life insurance works

At first glance you would think that life insurance would be simple to understand, you die and someone gets some money, but life insurance can be very confusing. There are different kinds of life insurance from "regular" term life insurance to accidental death to what are called cash policies.

In life insurance there is the insured person and the beneficiary. The beneficiary is the person who will receive the policie's payout upon the death of the insured. Most life insurance policies are to protect the financial future of the beneficiaries (often a spouse or children) in the event that the insured person dies and can no longer provide for them. The pay out or benefit is usually not taxed in the US unless as part of the inheritance tax.

The premium of a life insurance policy can vary depending on all sorts of factors. Some factors include the current health of the insured, age, gender, whether the insured smokes or uses tobacco, and other lifestyle choices of the insured. Life insurance premiums may be paid once a year or monthly.

Types of life insurance

There are several available types of life insurance. A few are described here:

Term life insurance

This is the basic type of life insurance and what many people think of when they think of life insurance. Typically a premium is paid periodically, often once per year. The insured is then covered for a certain amount of time. Upon the insured's death, a benefit is paid to the beneficiary. This type of life insurance has no "cash value". In other words, there is no investment factor, just a benefit paid upon death.

Term life usually has a term or period of time where the premium does not increase. For example, if you are 30 years old and get a 20 year term policy the annual premium will not increase for 20 years. However, the longer the term the higher the premium will be. For example, a 10 year term will be less expensive than a 20 year term. The advantage of the 20 year term being that the rate will stay fixed for 20 years.

Permanent life insurance or Cash Value Life Insurance

Permanent/cash value insurance is sort of an investment and life insurance combination. The policy builds a cash value over time, but will pay a benefit upon the death of the insured.

Here are some examples of permanent life insurance:

Whole Life Insurance:

Whole Life is probably the simplest form of permanent life insurance. With Whole Life insurance you get a fixed premium that will never change, a death benefit, and a tax-deferred cash value. Keep in mind with this type of policy the dividends that are discussed are not guaranteed, the premiums will be higher than term life, and any value you take out or cash out of the policy will likely reduce the death benefit.

Universal Life Insurance

A Universal policy is very flexible, but can also be very confusing. There are options for a lifetime income for your beneficiaries, which can be a nice option. You can make changes, but these can affect your premiums, death payout, etc. I won't try to describe it all here, but be sure to have this type of insurance fully explained to you. Until you fully understand the policy, maybe best not to purchase it. Be sure to read your life insurance policy in detail. Make sure that you have covered what needs to be covered and make sure that any tax issues for your beneficiaries are understood. Life insurance can buy you and your family great peace of mind as well as great protection in the event of the worst happening.


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Please Note: THIS IS NOT PROFESSIONAL ADVICE. If you need specific advice please seek a professional who is licensed or knowledgeable in that area.  Please note that we are not insurance experts or lawyers. We accept no liabilty and claim no validity for the information on this site. Information on this site may not be accurate.  Insurance customers should always consult their insurance company and/or agent as well as their lawyer to get a good understanding of coverage and other legal questions/concerns about their insurance policy or any policy they intend to buy.

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