Life insurance is a very important purchase for everyone. It is needed by everyone. It is a big decision to make. If anything was to ever happen to you, it helps the people in your family pay for your bills and your funeral costs. It can also help pay for your children’s future education, continuing a family business and anything else you may have left behind. No one knows what will happen, but everyone does die at some point, so why leave behind a burden for someone else to pay for, if you can help it. Some people think health insurance will help to keep you from dying, but that doesn’t always work out that way, and if something does happen then health insurance does not help pay for your bills and your family is still stuck with a burden. Some people are not sure what life insurance is. Well that’s simple; it’s a contract between the policy holder and the insurer. It simply states that the insurer agrees to pay a sum of money upon the occurrence of the insured individual’s death or other event, such as terminal illness or critical illness. The policy holder does have to pay a certain amount every so often that is a premium. In some countries the bills and funeral costs are included in Policy Premium. It also states that a benefit is paid to any beneficiaries that you may have. There are different events that can be covered not just Death. These events can be different serious illnesses. Life insurance policies can fall into two major categories; protection policies and investments. A protection policy is designed to provide a benefit in the event of a specified event, which is usually a lump sum payment. The most common form of this is term insurance. An investment policy is designed to facilitate the growth of capital by regular or single premiums. These are usually whole life, universal life, and variable life policies.

The policy holder and the insured can be two different people. Someone else can take the insurance out on you and then they are the policy holder and then you are the insured. The policy holder is the person that has to pay the premiums though. In the cases where the policy holder is not the insured, the insurance companies tend to limit policy purchases to those with an insurable interest. For those policies it is usually limited to close family members and business partners because they usually have insurable interest. The insurable interest requirement usually demonstrated that the purchaser will benefit some kind of loss if the insured dies. Such a requirement prevents people from benefiting from the purchase of purely speculative policies on people they expect to die. With no insurable interest requirement, the risk that a purchaser would murder the insured for insurance proceeds would be great. In at least one case, an insurance company which sold a policy to a purchaser with no insurable interest was found liable in court for contributing to the wrongful death of the victim, which was the insured. If the insured commits suicide then the policy becomes nulled. Any misrepresentations by the insured on the application are also grounds for nullification. Most US states specify that the contestability period cannot be longer than two years; only if the insured dies within this period will the insurer have a legal right to contest the claim on the basis of misrepresentation and request additional information before deciding to pay or deny the claim. The face amount on the policy is the initial amount that the policy will pay at the death of the insured or when the policy matures, although the actual death benefit can provide for greater or lesser than the face amount. The policy matures when the insured dies or reaches a specified age, which is usually 100 years of age.

There are two basic and four sub types of life insurance. The two basics are temporary and permanent. The four sub types are term, universal, whole life and endowment. The first basic, temporary term, has three key factors that must be considered. Those factors include: face amount, premium to be paid, and length of coverage. If you are wondering what each one of those means, don’t keep wondering anymore. The face amount is a protection or a death benefit. The premium to be paid is the cost to the person wanting the insurance. Of course, length of coverage is how long you wish to be covered. Different insurance companies will sell term insurance with combinations of the above factors. The face amounts can remain the same or drop. The term must be for at least one year. The premiums can stay the same or go up. The most common type of term is called the annual renewable term. It is a one year policy but most insurance companies will guarantee it will resume a policy of equal or lesser value without affecting the insurability of the person and keep a set premium for your age at that time. Another common type of term insurance is called mortgage insurance. It usually has a level premium and declines the face value policy. The face amount is intended to equal the amount of the person’s residence mortgage, so that it will be paid when the owner dies. A person can insure his/her life for a specified term. If he/she dies before that term is up, his/her estate or beneficiary receives some money. If he/she does not die before the term is up, he/she receives nothing. In the past these policies almost always excluded suicide. After several court judgments against the companies, payouts do occur on death by suicide. Basically, if a person with insurance commits suicide within the first two years of the policy, the insurance company will return the premiums paid, but it is considered a death benefit after two years. The other basic, permanent, is a life insurance that is supposed to remain in force until the policy pays out, unless the person fails to pay the premiums when they are due. This type of policy cannot be canceled by the insurance company for any reason except fraud in the application, and that must happen within the first two years. Permanent insurance expands a cash value that lessens the amount that is at risk to the insurance company. An example: A policy that carries a million dollar face value is going to be expensive to an older person. The person can access the money in the cash value by withdrawing money, borrowing the cash value, or giving up the policy and receiving the end value. The four sub types are listed under permanent insurance. The differences in them can be beneficial, also. If you want a level premium and a cash value table guaranteed by the insurance company you should go with the whole life. The advantages of this type are guaranteed death benefits, cash values, fixed premiums and mortality and expense will not lessen the cash value in the policy. But with all the greater things in life there are disadvantages also. The most common disadvantages are inflexibility and the rate of return is not a competitive savings method. There are things called riders that are available. They allow the person to increase a death benefit by paying more premiums. A policy of dividends can also increase a death benefit. Dividends cannot be guaranteed and will most likely be higher or lower than past rates. In a short-term policy premiums end up being much higher than the insurance, but cumulative premiums are usually equal as long as the policies are kept. There are policy loans in which cash values can be accessed any time. These loans do decrease the death benefits if you don’t pay it back, but it is not mandatory for you to pay it back. The beneficiary cannot receive cash values, only the death benefit. In the universal sub type you get greater flexibility in premiums and a higher internal rate for return. There are many types of universal policies. Those include a fixed variable and equity indexed insurance. This coverage comes with a cash account. Your premiums will make the cash account grow. You do have to pay interest though. There is mortality and administrative charges against the cash account also. There are two functions that make any life insurance work. One is mortality. The other is cash. In the mortality function the premiums are paid by the beneficiaries for a certain amount of time. In the cash function if a person reaches the age of 95 there policy will mature. If you didn’t like the disadvantages of whole life, then you should like the universal. The premiums are flexible in the universal package. The mortality and administrative charges are always known and cash value is easily retrievable. In the universal you have two options. In option A the beneficiary gets the face value at the insured’s death. The other option, b, will pay the face and cash value, and it increases the death benefit each year. Yet another type of insurance that is permanent is called limited pay. In limited pay, all premiums are paid in 10 to 20 years or are paid up at the age 65. Another is named endowments. Endowments are policies where the cash value is grown in the policy and equals face amount at a specified age. Endowments are always more expensive than whole life and universal life because the premium paying period is shorter and date is sooner. Endowments are paid whether the person is alive or not after a certain amount of time.