LIFE INSURANCE: An ACT OF LOVE
Life insurance is a contract between an insurance policy holder and an insurer where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of an insured person. Depending on the contract, other events such as disibility or critical illness can also trigger payment. The policy holder typically pays a premium, either regularly or as one lump sum. Other expenses, such as funeral expenses, can also be included in the benefits.
Term life insurance or term assurance is life insurance that provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the life insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is typically the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.
- Term Life Insurance is primarily for persons seeking coverage for a limited period. (young adults, young couples or young families for example).
- Persons wishing to meet their need for insurance despite budget constraints.
- Owners of small and medium-sized businesses (for example, to obtain coverage in case of the loss of a key employee).
Whole Life Insurance.
Whole life is a type of life insurance contract that provides insurance coverage of the contract holder for his or her entire life. Upon the inevitable death of the contract holder, the insurance payout is made to the contract’s beneficiaries. These policies also include a savings component, which accumulates a cash value. This cash value is one of the key elements of whole life insurance.
Similarities & Differences to Term Life Insurance
- Just like term life insurance, beneficiaries exist in a whole life insurance policy. They receive the death benefit upon the contract holder’s death.
- The most obvious difference, at least superficially, is cost. In some cases, whole life insurance premiums are three to five times as much as term life premiums, at least at the onset. However, term life insurance lasts a “term”: a specified period, usually 10 or 20 years, before the policy expires. The younger you are and the better health you are in, the lower the cost. When the term is up, you can renew the policy, generally at a much higher premium, and depending on your age and health. Whole life insurance premiums, while higher initially, never go up – this is key. The policy is structured to last your entire life, and as long as you keep paying the premiums, the policy will be in force regardless of age and health.
- The premiums in whole life policies go towards a cash value as well as a death benefit – term life has just a death benefit.
Universal Life Insurance
Universal life insurance is type of flexible permanent life insurance offering the low-cost protection of term life insurance as well as a savings element (like whole life insurance), which is invested to provide a cash value buildup. The death benefit, savings component and premiums can be reviewed and altered as a policyholder's circumstances change. Unlike whole life insurance, universal life insurance allows the policyholder to use the interest from his accumulated savings to help pay premiums over time.