Life Insurance

Life insurance is the agreement between the life insurance company and you where you agree to give certain pre-payments to it and the company agrees to give a lump of money to somebody who you choose if you pass away.

How life insurance works

In life insurance, four roles exist: the life insurance company, the insured individual, the policy owner and the beneficiary. Technically, the last 3 roles could all be the same individual. Also, one policy might cover more than 1 insured and might have more than 1 beneficiary.

The insurance company vows to give a death benefit to the policy beneficiary upon the insured’s death, as long as this policy is still valid at that time. The policy owner takes responsibility for paying his premiums to maintain his poilcy.

The purposes of life insurance

The commonest purpose of a life insurance is protecting the finances of a person’s family and friends if a wage-earner should die, but that is not its only application. Life insurance could be used:

  • To get childcare and cover a home-maker's tasks
  • To get estate protection
  • To cover the mortgage
  • To retire financially stabld
  • To safeguard a business against losing a key worker
  • To have as an employment plus

Types of life insurance

Life insurance is perceived best by dividing the types of life insurance in three categories: whole life insurance, universal life insurance and term life insurance,.

Whole life insurance demands fixed payments on a predetermined schedule. These policies have a coverage to a certain time (normally 100 years). These policies offer a death benefit, and even if the individual insured outlives this policy, his death benefit still gets paid. These policies have a cash value, meaning that they could be easily liquidated.

Universal life insurance permits payments of different amounts at any time (following the certain governmentaally stipulated maximums). Coverage by these policies may be continued indefinitely. Those policies have cash value, meaning that they could be easily liquidated.

Term life insurance deamds fixed payments on a predetermined schedule and has coverage for a short duration (for example 10 years). This policy pays the death benefit only if the insured person dies before his policy expires.