Life insurance is a kind of insurance policy that is taken out on the life of an individual and pays out a lump sum benefit in the event of that person’s death. It is different from many other insurance policies, in that the insured person is not necessarily the policy owner. For example, a wife might take out a life insurance policy on her husband in order to protect their family’s financial well-being in the event of the husband’s untimely demise. In other cases, though, the insured can be the policy owner as well.
The primary purpose of life insurance is to provide for your dependents’ financial well-being in the event of your untimely demise. If, for example, you are the primary earner within your family, it would make sense to ensure that your dependents and spouse are able to continue enjoying the same standard of living even if you were to no longer be there to provide. Life insurance policies can also be considered a form of investing. A variable life insurance policy, for example, permits investments to be made in stocks, bonds and mutual funds.
This kind of life insurance policy provides protection for a certain period of time, typically 10 or 20 years. During this period, a term life insurance policy owner can expect their premium payments to be stable. However, after the term has expired, those premium payments will typically increase substantially in order for coverage to be continued. The specific term makes this kind of life insurance policy the least expensive, and it is therefore a good option for those looking to create a simple safety net for themselves and their families.
Unlike a term life insurance policy, this kind of insurance provides for a lifetime of coverage. While the policy is in effect, the comprehensiveness of the coverage can be altered, along with the rate of the premiums. However, the flexibility of a life insurance policy of this nature comes at a cost. It is one of the most expensive. That being said, the tax-deferred savings that these life insurance policies can offer make them an ideal choice for individuals that are concerned with wealth management and estate planning.
Like a universal life insurance policy, whole life insurance provides a lifetime of coverage. However, a whole life insurance policy is not flexible in the same way. The premiums and coverage of a whole life insurance policy are typically fixed when the policy is purchased. Like a universal life insurance policy, though, whole life insurance policies have a cash value, and they can be used to generate tax-deferred savings. For this reason, these kinds of policies can be thought of as a kind of investment, which makes them an ideal choice for those who are concerned with estate planning, and are seeking to pass on money to their beneficiaries after their deaths.