Life insurance is a practice that seems to date back to Ancient Rome at a time when burial clubs emerged. These clubs would cater for funeral expenses of club members and ensure those left behind were assisted financially. Modern-day life insurance can be described as a legal contract between an assurer or insurer and a policyholder who is the owner of the said insurance policy. The contract binds the policyholder to pay a premium, and in exchange, the insurance company pays an assured sum of money in case of death or after a given period of time. This premium can be paid at once or in regular instalments. Designated beneficiaries assume the payout upon the death of the policyholder. Critical and terminal illnesses can also trigger a payout if they were included in the contract.
Importance Of Life Insurance
Life insurance is a great way of ensuring loved ones left behind who were dependent on you are able to carry on with their lives with minimal or no financial strain. It could also offset significant debts and offer protection against illnesses. Life insurance can additionally be an investment as some types of life insurance plans allow you to earn money or borrow loans. Buying life cover is highly recommended for breadwinners, parents with minors or special needs children, high net worth individuals, people with significant debt or mortgages, key business employees, and people who wish to leave their loved ones an inheritance.
Types Of Life Insurance
Life insurance can be categorized into two major groups; protection policies and investment policies. The former refers to insurance covers that provide a death benefit when a specified event occurs. A good example would be term insurance, which is also known as pure life insurance. Term insurance policies guarantee a payout if you die within a specified period, mostly 10, 20, or 30 years. They are very affordable, but if you happen to survive, neither you nor your beneficiaries will get paid. Term insurance is the opposite of permanent life insurance, which stays active until the policyholder dies, terminates the contract, or stops paying premiums. It can be level, whereby premiums stay the same all through or increasing where premiums get higher as one age.
Investment policies facilitate capital growth on top of your assured sum. Under this category, you have whole life insurance at number 1, which is a type of cover that enables the policyholder to accumulate cash value. Second is universal life insurance that has a cash value feature that earns interest in making premiums and benefits adjustable over time. At number three, four, and five, we have guaranteed universal life insurance, variable universal life insurance, and indexed universal life insurance.
Also available is guaranteed life insurance, which covers individuals who are often rejected by most insurance companies because of underlying medical conditions. To mitigate the high risks, insurance companies usually do not pay out beneficiaries of policyholders who die within two years of policy enforcement. They, however, return paid premiums and interest. Some companies feature a burial or final expense cover, although these kinds of policies usually have very low death benefits.