Life Insurance

Life Insurance

Life insurance seems such a normal part of daily existence that its meaning can be lost in translation, along with the money you pay for it. That said, let's get down and dirty into what life insurance principally means, so that even before trying to acquire one, you have basic knowledge about what it gives you.


What is Life Insurance?

The name itself hints of what it means. Life insurance is a system that provides financial compensation to individuals or family groups when the policy holder meets his demise. Some even assist in the finances of people who are incapacitated by incident or sickness that prevents them from going to work.


There are two main classifications of life insurance: term life insurance and permanent life insurance. They are different, but only in terms of time.


Permanent life insurance

Permanent life insurance pays dividends when the policy holder dies. There are usually three categories of permanent life insurance, named differently by companies, but still have the same principal meaning: Whole life, universal life and variable life.


Whole life insurance consists of having the insurance coverage costs chopped up in equal and steady payments for the duration of policy holder's whole life. They have higher early payments than term payments, but they can add up to higher cash-surrender- value funds. A cash surrender value is the amount of money over the risk protection charges of the insurance company that a person can obtain from the policy, in the event they cancel their insurance. Whole life insurance holders can also borrow against their insurance.


Universal life insurance adopts some of the features of term life insurance. It adjusts to the holder's current financial status, but maintains a flexible target premium which the insurance company calculates and enforces for the rest of the policy. Holders will have to pay basically within the target premium, give or take.


Variable life insurance has whole life features also, but there is one big difference. Policy holders cannot determine the amount of their cash surrender value, since most of the overpay from the holders are invested into stocks, rather than the common practice in which these are put into accounts that earn regular interest. This means that their cash surrender value depends on the performance of their stock, and surges and dips with it.


Term Life Insurance

Term life insurance keeps a specified time when the policy holder can cash in on the policy. The periods vary, but they basically are chopped up in sets of five. 5, 10 or 20 years. This is great for younger individuals who seek more affordable life insurance policies. They are mostly subscribed to cover after-death costs, such as outstanding debts or burial services. But they can not be used to wholly cover large debts, such as long term mortgage loans or estate taxes.


All said and done, obtaining life insurance entails so much more information than provided here, but treat this article as basic math, readying you for algebra, calculus or differential equations. So be informed and look at all possible alleys which your life insurance can go before deciding on anything. Better yet, talk to a professional.


Term Life Insurance