Life Insurance

Types of Life Insurance Policies

Life insurance of a person pays the premium or coverage amount to the named beneficiaries of the deceased after his or her death. This sum allows the family to be financially stable for a while if they are not or else it can also be used to pay for the education of the deceased’s child. 

There are two main types of life insurance policies that an insurance company offers:

  1. Term life insurance 
  2. Whole life/ permanent life insurance 

Term life insurance policy is the most basic form of life insurance policy present. The duration of the term is anywhere between one to thirty years, and hence, only if the death occurs during the period of this term, the life insurance policy is obliged to pay. If it does not occur during the term the insurance cannot be claimed. Term insurance policies usually do not entail other benefits besides this. 

Permanent or whole life insurance policy unlike the term life insurance policy is not restrictive in its approach. It is not confined to a specific period or number of years and pays the coverage no matter when you die. Even if you die at 100 they will have to pay! There are several types of permanent insurance policies.

1. Whole or ordinary life:

In this type of life insurance, you receive a death benefit, and along with that you also receive a savings account. These are the savings that have culminated and accumulated as a result of the premium that you have paid overtime and the dividends that get paid to you by the company. 

2. Universal or adjustable:

In this, your savings receive an interest payment which further adds up to your account. This can be highly beneficial in circumstances when your economic situation could possibly change. However, if your payments decrease or stop then this would entail usage out of your savings account thereby negatively affecting that and causing your life insurance coverage to stop and subsequently end. 

3. Variable life:

Besides death benefits that all life insurances provide, variable life insurance from an insurance company allows insurers to have access to a savings account. Through this savings account, they can further invest the amount into stocks, mutual funds as well as bonds. This however is risky, as it all depends on the value of the investments that you will be undertaking. If the value does not rise and the investments perform poorly then this will lead to our death benefit being impacted negatively and thereby reducing. Some insurance policies however also provide you with a guarantee of now allowing your death benefit to fall below a minimum benchmark that they have set. 

4. Variable – universal life:

As the name suggests, it is a mix of variable and universal life insurance policies. You can have access to risky investments as well as adjust your death benefit. You can derive the benefits of both the policies in this.