Life insurance is a contract with an insurance company. You are protected through the lifetime of the contract in exchange for premiums. If you were to die while your policy was active, your chosen beneficiary would receive a sum of cash. Your beneficiary might use this money, called a death benefit, to pay final expenses, pay the rest of your mortgage, or cover any expenses for your loved ones. The following are common types of Life Insurance:
Term Insurance is the most affordable type of insurance when initially purchased, it is designed to meet temporary needs. It provides protection for a specific period of time ('term') and generally pays a benefit only if you die during the term. This type of insurance often makes sense when you have a need for coverage that will disappear at a specific point in time. For instance, you may decide that you only need coverage until your children graduate from college or a particular debt is paid off, such as your mortgage.
If you reach the end of your coverage period, you and the insurance company simply part ways. If you still need life insurance, you can extend coverage for a new term or convert your policy to permanent life insurance (just keep in mind your premiums might increase)
Whole life insurance, or whole of life assurance, is a life insurance policy that remains in force for the insured's whole life and requires (in most cases) premiums to be paid every year into the policy.
It is a life insurance contract with level premiums that has both an insurance and an investment component. The insurance component pays a stated amount upon death of the insured. The investment component accumulates a cash value that the policyholder can withdraw or borrow against. As the most basic form of cash-value life insurance, whole life insurance is a way to accumulate wealth as regular premiums pay insurance costs and contribute to equity growth in a savings account where dividends or interest is allowed to build-up tax-deferred.
Universal Life Insurance was created to provide more flexibility than whole life insurance by allowing the policy owner to shift money between the insurance and savings components of the policy. Premiums, which are variable, are broken down by the insurance company into insurance and savings, allowing the policy owner to make adjustments based on their individual circumstances. For example, if the savings portion is earning a low return, it can be used instead of external funds to pay the premiums. Unlike whole life insurance, universal life allows the cash value of investments to grow at a variable rate that is adjusted monthly.
Final expense insurance is a type of permanent life insurance policy that provides a lump sum to your chosen beneficiary to cover end-of-life expenses. If you buy final expense insurance and continue to pay premiums during the life of the policy, your beneficiary will receive the death benefit when you die. They can use the death benefit to cover costs related to your passing, including medical expenses, a memorial, or funeral service. Many families don’t have the funds readily available to cover funeral expenses, which generally cost around $10,000. Final expense insurance steps in to pay for the burial and any other expenses your family needs, so they don’t have to face a financial burden during a difficult time.
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