What Is Life Insurance ?

Life Insurance

Life insurance is a contract between the policy owner and the insurer. The insurer (life insurance company) agrees to pay a sum of money (death benefit) to a beneficiary when the insured dies or has a terminal or critical illness. The policy owner agrees to pay a premium, (stipulated amount) at regular intervals or in lump sums. The policy owner does
have to be the insured.
Purpose of Life Insurance
- To conserve and protect human life value. Human Life Value is the value of a person's future earnings. That individual's or family's economic existence can be subject to loss through death, retirement, disability, or poor health.
- Chosen by the policyholder, the beneficiary receives the death benefit. There may be more than one beneficiary. There must be an insurable interest between the insured and the beneficiary. Individuals, businesses, trusts, estates, and charities can all be beneficiaries. The policy owner has the right to change the beneficiary at any time for as many times as desired.
Types of Life Insurance
Term Insurance 
- Considered the simplest type of life insurance. It give a protection for a specified period  and pays a benefit only if the insured dies during that period. It is typically the least expensive form of insurance primarily because it is temporary. The most popular form of term insurance is level term in which there is a level amount of protection (death benefit) for a specified time period. There are also increasing term and decreasing term policies. 10, 20, and 30 year terms are the most common.
Look for a term policy that is guaranteed renewable level term. That means the premiums remain the same throughout a specified period of time regardless of the insured's health changes. Often term policies will be convertible. At the end of a level term period the policy owner can convert the policy to permanent life insurance without evidence of insurability . The premiums will be based on the current age of the insured. Permanent
Whole Life Insurance 
- Permanent insurance. Death benefit is in force for the entire lifetime of the insured. Typically, permanent life insurance matures at age 100 at which time the insured, if still alive, will receive the full value of the policy.
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smaller in the insured's later years. Whole life policies develop cash values which may be available to the policy owner. This cash value can be used as collateral for a loan or borrowed from the policy. If borrowed, interest is charged at a specified rate in the policy. Any money owed on a policy loan is deducted from the benefit at the insured's death. If the policy is surrendered for cash, the loan is deducted from the cash value.
Universal Life Insurance 
- Also permanent insurance, but with an investment component. The policy owner can vary the timing, amount of premiums, and death benefit. Premium payments must be frequent and large enough to generate sufficient cash value. The cash value is used to pay the monthly policy expenses, but if there is not enough the policy terminates. Withdrawals are permitted from the cash value account. The cash account is considered the investment component and the funds are invested in stocks, bonds, and money market mutual funds chosen by the insurance company.
- Permanent insurance with a riskier investment side to it. The death benefit and the cash value of the policy fluctuate according to the investment performance of a separate account fund. The main difference from universal life insurance is that you may select the types of investment vehicles as well as determining the investment amount, thus bearing more of the risk There are two types of variable life insurance - variable whole life and variable universal life.
With variable whole life 
The death benefit may increase or decrease depending on investment performance, but will not fall below the guaranteed minimum if the required premium is paid.
The policy owner determines the timing and amount of premiums and death benefit. The owner also directs investment of the cash value and assumes all the investment risk. Typically there is no guaranteed minimum death benefit.
Survivor ship or Second-To-Die Life Insurance 

- A permanent policy that covers the lies of two people. The death benefit is payable when the last of the two insureds dies. Premiums are generally less than two separate policies. Whole life, universal life, and variable life all offer Survivor ship policies. Typical uses for these are: to pay estate taxes, protect dual incomes, and key person business insurance.