What is life insurance?
A contract between an insurance company and a policyholder. When you get a life insurance policy it guarantees the insurer will pay a sum of money to the beneficiaries named in the policy if the insured policyholder happens to pass away. This coverage is in place for the exchange of premiums paid by the policyholder.
Who is life insurance good for?
Life insurance is good for many different lifestyles. It provides financial support for the beneficiaries of the policy. Below are a few examples of who may want to consider a life insurance policy;
- Parents with minor children
- Parents with special-needs adult children
- Adults who own property together
- Elderly parents
- Young adults who want to lock in low rates
- Wealthy families who expect to owe estate taxes
- Families who can’t afford burial and funeral expenses
- Businesses with key employees
- Married pensioners
How does life insurance work?
Within a standard life insurance policy there are two main parts, the death benefit and the premium. A basic term life insurance policy will have these components, but when dealing with a whole life policy or permanent life insurance policy you will also have a cash value associated with the policy.
- Death Benefit; The face value, most commonly known as the death benefit is the amount of money the life insurance company agrees to pay out to the beneficiaries within the policy if the policyholder is to pass away.
- Premium; The life insurance premium is the amount of money the policyholder agrees to pay to the life insurance company to maintain coverage.
- Cash Value; In a permanent life and whole life policy the cash value will serve two purposes. It can be used as a savings account that you as the policyholder can withdraw from while alive. The other option is the policyholder may use the cash value to pay for premiums or buy additional coverage. There are many restrictions with what can and can’t be done with the cash value. It’s always best to speak to an agent or the life insurance company to find out the exact details of your policy.
Types of life insurance policies
There are many types of life insurance policies. Finding something to fit your exact lifestyle and needs should not be difficult. Below are some examples of different types of life insurance;
- Term Life insurance; Term life insurance is set for a particular amount of time and then will expire. The most common timeframes are 10, 20, and 30 years.
- Level Term life insurance; With level term the life insurance premiums are the same every year.
- Increasing Term life insurance; An increasing term policy will start out with lower premiums when you’re younger and increase as you get older. This is commonly referred to as yearly renewable term.
- Return of Premium life insurance; An ROP policy will include a built in savings system. You pay a flat amount into the policy but at the end of the term you will get the money back that you put in.
- Permanent life insurance; A permanent life insurance policy will stay with you for life, as long as you continue making the premium payments.
- Single Premium life insurance; With a single premium policy the policyholder pays the entire premium upfront.
- Whole Life insurance; A whole life policy is a type of permeant life insurance policy that will accumulate a cash value.
- Universal Life insurance; Universal life is also a type of permeant life insurance policy which will also have a cash value and accrue interest.
- Guaranteed Universal life insurance; Guaranteed universal life is a policy is a type of universal life insurance that will not build a cash value but typically has lower premiums than whole life.
- Variable Universal life insurance; With this policy the policyholder can invest the cash value of the policy.
- Indexed Universal life insurance; This policy will let the policyholder earn a fixed or equity indexed rate of return on the cash value of the policy.
- Burial or Final Expense; Final expense insurance is a type of permeant life insurance that will pay out a small death benefit.
- Guaranteed Issue; This type of permeant life insurance is available to policyholders that have medical conditions that may make them uninsurable. This policy will not pay a death benefit within the first two years of the policy.
How much life insurance should you purchase
You may want to take a close look at your financial situation before buying a policy. Determine the amount you provide to the beneficiaries you plan on naming in the policy and calculate what it would take for them to maintain the standard of living you allow them.
Everyones lifestyle is different and due to that everyone will have different goals they may want to accomplish with a life insurance policy.
It’s always a good idea to speak to a professional life insurance agent to go through all of your options to determine what may be best for your situation. At Eugene C Yates Insurance Agency we have some of the friendliest and knowledgable agents in the industry.
If you have additional questions regarding life insurance or would like to speak to an agent to get a free life insurance quote, please give us a call at 916 313 6100