Saturday, April 29th 2017

What is Life Insurance?

Life insurance is the most popular individual insurance produt made. It is a contract between an individual and an insurance company that binds the insurer to pay a stipulated face amount of money when the insured is deceased. In return for this post-death benefit the insured agrees to pay annual premiums to insurance company while he is living.

There are 2 primary varieties of insurance:

1. Term Life: The purest form and the cheapest, this contract simply looks at your age, health, life expectancy and comes up with a monthly amount that must be paid per dollar of coverage. As the insured pays the premiums, he only gains the insurance coverage--as soon as he stops paying the contract is worthless. It does not have any accumulation value. In return, the insured gets very reduced premiums and simple terms. The policies are available on the internet, through magazines and often do not need an agent or health visit. Term policies are generally not offered to seniors since their chance of mortality is high enough to make the premiums out of hand.

2. Whole Life: The other major type of life insurance, whole life does just that: it covers the insured for their whole life. There are two big difference between whole life and term: 1) Whole life cannot be cancelled by the insurer once it is issued--it is in force so long as the insured pays the premiums; and 2) Whole life has a cash value, a value if it is cancelled early or an accumulation value that potentially could pay the premiums if it gets large enough. Whole life is a financial asset and for that the premiums are much higher than the simpler term insurance.


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