Life insurance is a contract between two people, called the policyholder and the insurance company. The agreement between these two parties is that the policyholder will pay a certain amount of money to the insurance company for a specific period of time, usually for one or more lives. The money paid by the policyholder is referred to as premiums.
The amount paid out by the company as a death benefit depends on how much life insurance coverage you have purchased and whether you have chosen to add riders to your policy. Riders provide additional coverage over and above basic death benefits provided by standard life insurance policies. They include things like disability income replacement, accidental death benefits, and others.
Most people buy term life insurance policies that provide coverage for a specific term (usually 10 years), but here myfinancesg.com are also permanent or whole life policies available. Whole-life policies include all premiums paid into the policy up until its maturity date (whole number), while permanent policies only pay out upon death at that point in time.
Life insurance policies can be divided into two main types: term and permanent. A term policy lasts for a specific period of time (usually 10 or 20 years) and then expires, whereas a permanent policy can be renewed for another term as long as you keep paying your premiums.
Term Life Insurance Policies
Term life insurance policies offer fixed premiums for a fixed period of time – usually 10 or 20 years – before they lapse or expire at the end of their term. These types of policies provide a risk-adjusted return over time on your investment.
Permanent Life Insurance Policies
Permanent life insurance policies can be a great way to secure the financial future of your loved ones, while also providing you with peace of mind. A permanent life insurance policy is designed to pay a guaranteed death benefit and/or cash value that keeps growing over time.
The benefits of life insurance are many. Here are the most important:
Payment while you’re alive. If you die before your term is up, the policy pays out immediately and your beneficiaries get the full amount that would have been paid if you had lived until the end of the term.
An inheritance tax deduction: Those who buy a life insurance policy with cash value can deduct the premiums from their taxable income when they file their taxes each year.
A lower cost than term insurance: A permanent plan is less expensive than a term policy because it pays out more money at once rather than over time. The cost may be higher if you want to borrow against it during your lifetime, but this will be offset by lower interest rates on loans taken out against permanent life insurance policies.
Final Thoughts
Life insurance can be useful in the unfortunate event of death. It can help pay off a mortgage, assist with funeral costs and cover other debts. It can also provide financial assistance to a surviving spouse, who may require extra time to find another job, or to children who need support until they’re old enough to be financially independent.