Life
insurance is a form of insurance that pays monetary proceeds upon the death of
the insured covered in the policy. Essentially, a life insurance policy is a contract between the named insured and the insurance company wherein the
insurance company agrees to pay an agreed upon sum of money to the insured's
named beneficiary ,
so long as the insured's premiums are paid current.
Purpose
People take out life
insurance policies for a number of reasons. Such insurance provides security to
family members upon the loss of a loved one. For instance, if the primary wage
earner dies in his or her prime, the death benefit received from the policy
will assist the surviving family members in overcoming the burden of the tragic
loss. The proceeds can also help pay for funeral costs when the death is
unexpected.
Life insurance can be
purchased by individuals, but is also offered as a perk by many employers.
Often times, large employers and government employers offer group life insurance at no cost to the employee. Should the employee wish to
obtain additional coverage from the employer's insurance company, they can
usually do so at reduced rates. In most circumstances, the insurance becomes
once the employee no longer works for the company.
Cost
The cost of life
insurance varies depending on such factors as the insured's age, health, and
occupation. Essentially, the more likely a person is to die at an earlier than
average age, the higher that person's premium charges will be. For example, the
premium for a 25-year-old, male, non-smoker in excellent health will be far
less expensive than a similar policy for a 65-year-old male smoker. Similarly,
a sky dive instructor would have to pay much higher premiums than would a
librarian.
Options
Life insurance is
available in a number of different forms from several companies. Each company
has financial representatives who help customers select the best insurance
products for their needs. Some of the typical forms of life insurance policies
include: whole life, variable life,
and term life.
- Whole life: With whole life insurance, a
portion of each premium pays for the insurance and the remainder serves as
a tax-free investment. A whole life policy sets a premium at the beginning
of the policy and that premium does not change over the life of the
policy. This form of insurance allows for a cash build-up during the
insured's life. This cash build-up can be used during the course of the
policy or it will simply serve to increase the death benefit in the end.
- Variable life: Variable life products begin
with low premiums during the initial stages of the policy and these
premiums increase steadily as the insured grows older. There should be a
cash build-up as long as the various mutual funds selected by the insured perform
well.
- Term life: Term life policies have premiums
that remain the same over the life of the policy, which typically ends
when the insured reaches a specific age. There is no cash build-up in a
term policy and, accordingly, the death benefit will not increase.
(From:
WiseGeek)
