Life Insurance Basics
What is life insurance?
In simple terms, a life insurance policy is a contract between a policyholder and an insurance carrier. Most life insurance policies have four parts:
• Premium payments – What the insured gives to the insurance carrier
• Death benefit – A sum of money the insurance carrier pays to beneficiaries upon the insured’s death
• Cash value – An interest-bearing savings or investment value that’s included in permanent life insurance policies
• Term period – How long the policy provides coverage for
Whole Life Insurance
You generally make level (equal) premium payments for life. The death benefit and cash value are predetermined and guaranteed (subject to claims paying ability of the issuing company). Whole life insurance can provide coverage for a set period as well as your lifetime.
Universal Life Insurance
You may pay premiums at any time, in any amount (subject to certain limits), as long as the policy expenses and the cost of insurance coverage are met. The amount of insurance coverage can be changed. In addition, the cash value will grow at a declared interest rate, which may vary over time.
Indexed Universal Life Insurance
Indexed universal life insurance is very similar to universal life insurance. It gives the policyholder a choice of allocating cash value amounts to a fixed account or a fixed-index account. You can pay premiums at any time, in almost any amount but subject to certain limits, so long as the policy expenses and insurance coverage cost are met.
Term Life Insurance
Term insurance will last a specified amount of time based on a set period. Time periods usually last for 10-30 years, with a 20-year period being the most common. If you were to purchase a 20-year term policy, it would last for 20 years.
If the policy owner passed away within the 20-year term, the death benefit would be paid to the beneficiary. If the policy owner was to decease after the 20-year term, there would be no death benefit.
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Are you thinking about getting a life insurance policy? There are many options available. If you’re wondering which path is the right one, here are life insurance basics to help you get started. If you’d like further assistance, I’m here to help!