Life Insurance

Term life insurance is a type of life insurance policy that provides coverage over a specified period, called the term. If the policyholder dies within the specified period, the insurer will pay the death benefit to the designated beneficiary; however, if the policyholder dies after the specified term has expired and the cover as ceased, nothing is payable.

With this type of policy, the insured pays a fixed premium throughout the specified term for a pre-fixed guaranteed sum. The policy eliminates having to deal with increasing premiums over the 24 coverage period. Level-premium policies are typically available for periods ranging from five to thirty years.

This term life insurance policy comes with an option to opt for another plan within the coverage term. For example, a policyholder can decide to convert their term life policy into an endowment plan that lasts for twenty years. With this change comes a change in the premium, and the new premium is based on the newly selected plan.

This policy comes with a savings element. Policyholders will have their premiums returned if they survive the full term of the policy. The premium for this policy is usually higher than that of a pure term policy because a portion of it goes towards the risk cover, and the remaining balance – the savings component – is invested. The investment returns accrued over the term of the policy, in addition to the savings component, are used by the insurer to return the total premium paid at the end of the term.

This policy provides holders with coverage every year, and as each year passes, the policy is renewed but at a higher premium since the policyholder is a year older, and premium costs increase with age. The benefit of this policy is that coverage is guaranteed to be approved each year, although it may not be cost-effective in the long run due to rising premium costs.

The benefit payable steadily decreases year after year with the reducing insurance need. This type of policy is typically used in a situation where the policyholder has taken a huge loan, for example, a house loan. In this case, the risk is of the policyholder dying before fully paying off the loan; therefore, the death benefit will be equal to 25 the outstanding balance on the loan, so in the event of the passing of the loanee, the proceeds of the policy are used to pay off the outstanding loan amount.

This is a special class of term policies. Riders are extras that “ride” on the policy to answer concerns like – what happens if I get disabled and can no longer pay my premiums? This is where a disability rider comes in. Other types of riders include accidental death riders and critical illness riders. A policy with riders provides holders with an added value when compared a pure term life insurance, and this comes with higher premium payments

Increasing term policies allow holders to increase the death benefit some time into the term of the policy. With every increase comes higher premium payments. One of the advantages of this policy is that it allows policyholders to pay less in the earlier years of the term when they have lots of expenses. This policy prevents having to qualify for another policy at an older age

As the name implies, permanent life insurance is a type of insurance policy that provides coverage for the entire lifetime of the policyholder and typically have a cash value component. Unlike term life insurance, which only guarantees a benefit payout over the specified period, permanent life insurance does not have an expiry date. It lasts for the rest of one’s life. Upon the inevitable death of the policyholder, the death benefit is paid out to the designated beneficiaries of the policy. In addition, most permanent life policies pay out dividends. Mutual life insurance companies are owned by their policyholders, so if an insurer generates more money that is spent, the profits are distributed as dividends among policyholders. The dividends can be collected as cash, or used by the policyholders to reduce premiums, or left to accrue interest.

Most permanent life insurance policies come with a savings portion known as cash value. The cash value is different from the policy’s death benefit. While the death benefit is the amount of money paid out to the designated beneficiary when the policyholder 28 dies, the cash value is a savings account that accumulates with time as you make your premium payments. Once your policy’s cash value has grown to a particular size, it can be used as collateral to secure a loan. Policy loans do not require any qualifications or credit checks. Since the insurer holds the money, these loans don’t have to be paid within a specified period. However, the policyholder will be charged a small interest on the loans. It is important to note that if the loan plus unpaid interest should always be kept to a minimal level, cause if it exceeds the size of the cash value, the policy will lapse, and coverage will be lost. Also, If the policyholder dies before the loan is paid back, the loan plus unpaid interests will be deducted from the payout that the beneficiaries will receive. The cash value of a permanent life policy offers some measure of protection to the policyholder. If the policyholder decides to give up on the coverage and close the policy, the amount of the cash value will be paid back. If coverage is ended by the policyholder, just a few years into the policy, the cash value will be subjected to surrender charges, so the full amount will not be paid out, but a substantial portion of the sum will be recouped.